The question, I thought, was about whether the security regularly pays out income on which taxes must be paid, as opposed to "compounding"--increasing in value, without imposing taxable income on the holder. Yes, I Bonds do increase in value, and they do have a coupon rate that drives part of that increase. But the increase in value isn't paid as taxable income at regular intervals, like conventional bonds.Not according to the issuer of the bond:Are you referring to Treasury I Bonds or the BlackRock iBond fund?Actually, I Bonds pay interest every month.I couldn't find whether Treasury bonds are compounded. Thanks for helping me, Geologist.
I guess my son's best option is to continue buying I-Bonds. I think they are compounded semi annually and taxed upon withdrawal.
Treasury I Bonds don't pay interest; the principal of the bond goes up.It is probably more accurate to say that every 6 months, the interest earned is reinvested and "becomes" principal. Even this is not really accurate, since it will still be taxed as interest later when the bond is redeemed. Really it's just a semantic distinction whether you call it interest or principal, what's actually important is what type of returns are you going to get from it, how is it taxed, and how does that compare to the other options.How does an I bond earn interest?
I savings bonds earn interest monthly. Interest is compounded semiannually, meaning that every 6 months we apply the bond’s interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous 6 months.
Thus, your bond's value grows both because it earns interest and because the principal value gets bigger.
I am still buying I bonds. They are my only fixed income allocation, and also double as my emergency fund. The rest of my portfolio is invested in stock (TSM/Total Intl). Tax deferral, guaranteed to never go down in value, no interest rate risk... these are all really good properties and give me the confidence to go with a higher stock allocation. For instance, I didn't have any worries about my fixed income allocation going down in value in 2022 while stocks were also dropping in value. The I-Bonds chugged right along.
Statistics: Posted by BirdFood — Fri Aug 09, 2024 3:09 pm — Replies 58 — Views 10322