How often do Treasury I bonds pay interest?
Treasury I bonds, also known as inflation-indexed securities, are a popular investment choice for many individuals looking to protect their purchasing power against inflation. One of the key features of these bonds is their interest payment structure. Understanding how often Treasury I bonds pay interest is crucial for investors to plan their finances effectively.
Treasury I bonds pay interest semi-annually, which means investors receive interest payments twice a year. The interest is calculated based on the bond’s yield and is compounded annually. The interest rate for these bonds is set by the U.S. Treasury Department and is adjusted twice a year, in May and November, to reflect changes in inflation as measured by the Consumer Price Index (CPI).
The interest on Treasury I bonds is not taxable at the federal level until the bond is redeemed. This feature can be particularly beneficial for investors in higher tax brackets, as it allows them to defer taxes on the interest earned. However, it’s important to note that interest earned on Treasury I bonds is subject to state and local taxes, depending on the investor’s location.
In addition to the semi-annual interest payments, Treasury I bonds can be redeemed after one year from the issue date. Investors can choose to redeem the bond at its face value, which is $100 for each bond. If the bond is redeemed before five years, there may be a small penalty for early redemption.
Overall, the semi-annual interest payment structure of Treasury I bonds provides investors with a steady stream of income while offering protection against inflation. By understanding how often these bonds pay interest and the associated tax implications, investors can make informed decisions about their investment strategy.
