Well spotted @planetkill I think your right on the additional $5k in paper bonds. Hate to lose those pieces of paper though!

Regarding children, I add a child account as a sub-account to mine and bough some in my children's name, so its definitely doable. I suspect the issue will come when I try and redeem them as to who they will send the money to!

planetkill 

I think you can also do an extra $5k/year for paper bonds, which is separate from the 10k/year electronic. And they can also be bought for kids (although I don't know if it counts towards the adult's limit). So a family of 4 can potentially invest $60k/year in ibonds, which currently pay >9%. Now that's not a bad savings rate... although I do miss when just a decade ago regular high yield savings accounts paid 5% interest. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

I read the same article you did. I think the $5k / year in paper bonds deal is that you can have a tax refund credit to you that way. I don't think you can outright buy $5k in paper bonds on top of $10k electronically, though I could be wrong. So yes, with kids, tax refunds, etc., you can make it work.

After the max 10k deposit, does it compound beyond 10k for the holding duration (e.g., 1-5 years minus penalty)?

I know it's better than nothing but seems like a lot of friction for small profit.

assuming adding 10k each year at 9-10% fixed rate:

year 1: $700-$900 max profit before federal tax.
year 2: $1400-$1800 ...
year 3: $2100-$2700 ...
year 4: $2800-$3600 ...

The calculation is a rough approximation, probably off.

Like I said, better than nothing.

I just accessed my account and the interest is clearly reinvested but the amounts I have were lower than I expected. Explanation seems to be ....

How do I bonds earn interest?
An I bond earns interest monthly from the first day of the month in the issue date. The interest accrues (is added to the bond) until the bond reaches 30 years or you cash the bond, whichever comes first.

The interest is compounded semiannually. Every six months from the bond's issue date, interest the bond earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal.

You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest. Note: If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

So my values were lower than I expected because a) we are in the middle of a 6 month period so I'm owed/due interest and b) since less than 5 years they have deducted the last 3 months interest.

Surprisingly while I can easily go back and see my purchases I can find no information at all regarding what interest I have been credited.

SMCJB 

I just accessed my account and the interest is clearly reinvested but the amounts I have were lower than I expected. Explanation seems to be .... How do I bonds earn interest? An I bond earns interest monthly from the first day of the month in the issue date. The interest accrues (is added to the bond) until the bond reaches 30 years or you cash the bond, whichever comes first. The interest is compounded semiannually. Every six months from the bond's issue date, interest the bond earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal. You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest. Note: If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm So my values were lower than I expected because a) we are in the middle of a 6 month period so I'm owed/due interest and b) since less than 5 years they have deducted the last 3 months interest. Surprisingly while I can easily go back and see my purchases I can find no information at all regarding what interest I have been credited.

So do you think it's worth it? If one's savvy enough to go through the treasury direct portal independently, then I would assume they could find or make a strategy gaining >9.62% on a safe single-stock (or very small basket) investment in less than 1 year w/o locking up their money for that year.

It just seems like a slap in the face to be capped at 10k with sub 10% interest when things like credit cards are at usury rates.

Like most investments its better for some than others. if you compare this to a 9 month CD (invest for 12 months, take out, lose last 3 months of interest) then its a much better investment. So for somebody buying CDs yes I think it's probably worth it. If I had a 1 year old would I invest money in it to pay for their college 20 years down the road? Maybe not.