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While I have your attention, AJ (and I value greatly your generously provided expert advice here in TMF), do you happen to know whether the interest payments are deposited automatically into the bank account linked to the treasurydirect account I created? I'd think so, but I haven't tracked down the answer yet.


Actually, since I-bonds are savings bonds, I believe that the only way to collect the interest is to cash a bond out, after the minimum 12 month holding period. The interest will accrue, compounding your return. That's kind of the beauty and a large selling point for savings bonds. And that's also the reason that you are allowed to defer paying taxes on the interest that the I-bond accumulates until you actually cash a bond - since the payment of interest is deferred, so are the taxes. If you want to, you are allowed to pay taxes on the interest each year. But that involves some extra work in documenting that interest each year, and dealing with the 1099-INT that shows ALL of the interest in the year you cash the bond in. There's a whole section in IRS Pub 550 that deals with US Savings bonds, including how to report the interest and then how to deal with the 1099-INT you get when you cash them in.

The bank account that's linked to your Treasury Direct is for you to be able to purchase more bonds and where the money will land when you cash out bonds. I will say - I haven't owned any savings bonds for a while (back when I owned them, I got paper bonds through my employer's plan), so I'm going off memory and a bit of googling. But that's my understanding of how savings bonds work vs. how regular Treasury bonds/bills/notes work. If you purchased a regular Treasury bond, you could indeed direct the interest to be paid to your linked account. But your interest rate would be pretty pathetic in comparison right now.

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