The Color of Money: 6 key things to know about inflation-indexed bonds paying 9.62%

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The inflation-indexed Series I savings bonds are red hot right now.

With the stock market down and savings account rates up a bit but still paying pitiful rates, a savings bond backed by the federal government paying 9.62% is like coming from an oppressive heat wave into an air-conditioned room.

The I bond was created as a hedge against inflation. Now that inflation is at a 40-year high, the bonds are a haven for people with funds they don’t need immediately. The 9.62% rate is good until the end of October.

Several callers to ASK-POST (855-275-7678), my toll-free line, have been asking about I bonds and sharing their difficulties in buying them. One question in particular kept popping up. People wanted to know how to pass on the bonds if they die before cashing them.

People are also reading…

How do I add a beneficiary for my I bonds?

I laughed out loud when I read this on TreasuryDirect about naming a secondary owner or beneficiary: “Adding a secondary owner or beneficiary to securities registered in single ownership form is simple.”

Clearly, the folks who write the instructions for navigating have a sense of humor.

As I’ve found trying to set up my own TreasuryDirect account, the instructions and procedures for buying I bonds are not so simple, as evidenced by the many calls and emails I received asking how to name a beneficiary.

And it’s important to name a secondary owner or beneficiary to avoid probate, so here’s what you need to do.

For step-by-step directions, go to TreasuryDirect and search for “How do I …?” You’ll see this question: “How do I add a secondary owner or beneficiary to my securities?”

The directions tell you to click on the “ManageDirect” tab at the top of the page. It’s in this area that you will find registration information.

Under “Manage My Securities,” click the link for “Edit a registration.” Choose the bond or bonds you want to edit on the next page. To add to the registration, your choices will be sole owner, primary owner or beneficiary. If you want a secondary owner, select the option for the primary owner.

If you plan to buy more bonds and name the same secondary owner or beneficiary, you can select “Make this my preferred registration.”

When you name a beneficiary, the registration says “Payable on Death,” or “POD.” When the primary owner dies, the other becomes the sole owner of the bond.

When you name a secondary owner, the registration says you own the bond “with.”

You can have only one secondary owner or one beneficiary for each bond.

So, let’s say you have two adult children, and you have $10,000 to purchase an I bond. If you want to leave each child half, you would have to purchase two $5,000 bonds, then designate each as a beneficiary.

You can change the secondary owner or beneficiary at any time.

Are spouses who file joint tax returns restricted to the $10,000 annual purchase limit?

Individuals can purchase up to $10,000 in electronic I bonds in a calendar year.

This means you and your spouse can each purchase up to $10,000.

You can also purchase up to $5,000 in paper I bonds using your federal income tax refund, bringing the possible total to $15,000 for individuals for the calendar year.

Can I buy I bonds in my kids’ names?

To buy an electronic I bond, you have to set up an account on TreasuryDirect. A child can’t establish a TreasuryDirect account, but adults can buy savings bonds for children under the age of 18 and register the bonds in the name of a child or children.

You can set up a minor account that is linked to your TreasuryDirect account. The only way to access the minor’s account is through your account.

Log into your own primary TreasuryDirect account. Click the “ManageDirect” tab. Under the heading “Manage My Linked Accounts,” click “Establish a Minor Linked Account.”

On TreasuryDirect, search for “How Do I Open an Account for a Minor?” for further information about accounts for children.

How do I verify my identity before buying an I bond?

Like many others I’ve heard from, I couldn’t immediately set up a TreasuryDirect account because of verification issues. Instead, I had to print out an authorization form (Form 5444) and take it to my credit union.

After checking my driver’s license, the credit union “certifying officer” watched me sign the form, then stamped it by adding her signature. I then had to mail the form.

An email from TreasuryDirect said, “The average approval takes 10-15 days but may be longer based on the volume of forms we receive.”

Will I still get the 9.62% rate if I run into glitches?

Those experiencing issues with buying I bonds are concerned they may miss out on the 9.62% rate.

Not to worry: I bonds can be purchased through October at the current 9.62% rate. That rate is applied to the six months after your purchase date.

Should I invest my monthly Social Security check in the stock market or an I bond?

There are two components to the return for an I bond — a fixed rate and the inflation rate.

The fixed rate stays the same for the life of the bond. But the inflation rate changes every six months. If or when inflation begins to drop, the inflation-protection rate portion of the I bond will drop.

While I bonds may have a place in your investment portfolio, you still need the growth potential of stocks.

Readers can write to Michelle Singletary at The Washington Post, 1301 K St. NW, Washington, D.C. 20071. Her email address is Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. The Washington Post’s Emily Guskin and Scott Clement contributed to this column.