How to buy i-bonds on fidelity

Individual Savings Bonds (i bonds) are a type of U.S. Treasury security that offers a safe and low-risk investment option for individuals looking to save for the future. These bonds are issued by the U.S. Department of the Treasury and are designed to protect against inflation by offering a fixed interest rate combined with a semi-annual inflation rate adjustment. Buying i bonds on Fidelity Investments, one of the leading online brokerage platforms, provides investors with a convenient and user-friendly way to add this investment to their portfolio. In this article, we'll guide you through the steps on how to buy i bonds on Fidelity, the benefits of investing in i bonds, and considerations to keep in mind.

Benefits of Investing in i Bonds:

Before diving into the process of buying i bonds on Fidelity, let's explore some of the key benefits of investing in these Treasury securities:

Inflation Protection: i bonds offer a built-in inflation protection feature that adjusts the interest rate based on changes in the Consumer Price Index (CPI). This ensures that the purchasing power of the investment remains relatively stable over time, providing a hedge against inflation.

Safe and Secure: i bonds are backed by the full faith and credit of the U.S. government, making them one of the safest investment options available. Investors can have peace of mind knowing that their principal investment is secure, and they will receive interest payments as promised.

Competitive Interest Rates: The interest rates on i bonds are competitive compared to other fixed-income investments such as savings accounts or certificates of deposit (CDs). The interest rate consists of a fixed rate set at the time of purchase, combined with a variable rate that adjusts every six months based on inflation.

Tax Benefits: Interest earned on i bonds is exempt from state and local income taxes. While investors must pay federal income tax on the interest, they have the option to defer taxes until the bond is redeemed or matures.

Flexibility: i bonds have a minimum investment requirement of $25, making them accessible to a wide range of investors. They can be purchased in increments of $25, up to a maximum of $10,000 per calendar year per Social Security Number (SSN).

Now that we've explored the benefits of investing in i bonds let's move on to the steps to buy i bonds on Fidelity:

Step 1: Open a Fidelity Account:

If you don't already have an account with Fidelity, you'll need to open one to buy i bonds. Visit the Fidelity Investments website and follow the instructions to open an individual brokerage account. You'll need to provide personal information, such as your name, address, Social Security Number (SSN), and employment details.

Step 2: Fund Your Fidelity Account:

Once your Fidelity account is open, you'll need to fund it to make purchases. You can transfer funds from your bank account to your Fidelity account electronically or by mailing a check. Follow the instructions provided by Fidelity to complete the funding process.

Step 3: Navigate to the Buy Bonds Section:

Log in to your Fidelity account and navigate to the "Trade" or "Buy/Sell" section. Look for the option to buy bonds or fixed-income securities.

Step 4: Select the Type of Bond:

On the bonds trading page, you'll see a list of available bonds. Look for the option to buy U.S. Treasury securities or i bonds specifically.

Step 5: Enter the Purchase Amount:

Enter the amount you wish to invest in i bonds. Keep in mind the minimum investment requirement of $25 and the maximum annual limit of $10,000 per SSN.

Step 6: Review and Confirm:

Review the details of your i bond purchase, including the purchase amount, bond type, and any applicable fees. Make sure all information is accurate before proceeding.

Step 7: Place the Order:

Once you've reviewed the details, click on the "Place Order" or "Buy" button to submit your purchase order. Fidelity will execute the trade on your behalf, and you'll receive a confirmation of the transaction.

Step 8: Monitor Your i Bonds:

After purchasing i bonds on Fidelity, you can monitor their performance and track interest payments through your Fidelity account. You'll receive semi-annual interest payments directly into your account, and the bonds will continue to accrue interest for up to 30 years from the issue date.

Considerations When Buying i Bonds on Fidelity:

Annual Purchase Limits: As mentioned earlier, there is a maximum annual purchase limit of $10,000 per SSN for i bonds. This limit applies to both electronic purchases through online brokerage platforms like Fidelity and paper purchases through the TreasuryDirect website.

Redemption Restrictions: i bonds have a minimum holding period of one year from the date of purchase. If you redeem the bonds before five years, you'll forfeit the last three months of interest. After five years, you can redeem the bonds without penalty.

Tax Implications: While interest earned on i bonds is exempt from state and local income taxes, it is subject to federal income tax. You have the option to defer taxes until the bonds are redeemed or mature, but it's essential to understand the tax implications of your investment.

Interest Rate Changes: The interest rates on i bonds are updated every six months based on changes in the CPI. This means that the interest rate on your i bonds will fluctuate over time, providing a variable income stream.

Diversification: As with any investment, it's essential to diversify your portfolio to manage risk effectively. While i bonds offer safety and stability, consider balancing your investment with other asset classes such as stocks, mutual funds, or exchange-traded funds (ETFs).

In conclusion, buying i bonds on Fidelity provides investors with a straightforward and convenient way to add this safe and low-risk investment option to their portfolio. With competitive interest rates, inflation protection, and tax benefits, i bonds offer a compelling investment opportunity for those looking to preserve capital and generate steady income.