I Bonds Are an Attractive Savings Option

Looking for a safe and low-cost investment that protects your savings from inflation for up to 30 years and pays more than bank savings accounts? If so, check out the U.S. Treasury Department’s I Bond. I Bonds are a type of U.S. savings bond that provide inflation protection. First introduced in 1998, they are sold at face value (e.g., $50 for a $50 I bond) and provide inflation-protected earnings for up to 30 years. Earnings are exempt from state and local taxes.

The earnings rate of I Bonds is a combination of two separate rates: a fixed rate of return and a semiannual inflation rate. Each May 1 and November 1, the Treasury Department announces a fixed rate of return that applies to all I Bonds issued during the six month period beginning with the effective date of the announcement.

Twice a year- on the anniversary and semi-annual anniversary of its issue date- the earnings rate of an I Bond will change to reflect an adjustment for inflation. The fixed rate of return, the rate an I Bond earns over inflation, remains the same. For example, let’s say you buy an I Bond in October. Your I Bond will grow at the earnings rate announced during the previous May. Six months later, in April, the I Bond will pick up the earnings rate announced in the previous November.

I Bonds are sold in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. A single owner can buy up to $30,000 worth of I Bonds during each calendar year. I Bond earnings are added every month and interest is compounded semiannually. I Bond earnings can be deferred until the bonds are cashed in or they stop earning interest after 30 years. Investors cashing in I Bonds before five years are subject to a 3-month penalty.


I Bonds provide peace of mind about the impact of inflation on the value of savings. For example, if inflation averages just 2.5%, in just 10 years it will take $1.28 to equal today’s dollar. In the rare event that the CPI-U goes down so the decline is greater than the fixed rate, I Bonds will not decrease in value. Instead, the value of the bond will be maintained until the earnings rate again produces an increase in value. Thus, I Bonds protect investors’ purchasing power from deflation as well as inflation.

Information about I Bonds is available on the Web site www.savingsbonds.gov. The Web site includes a “Savings Bond Calculator” to find out what your bonds are worth and what they’re earning. You can also download the free “Savings Bond Wizard” to keep track of your savings bond portfolio. The Wizard is a free computer program that helps investors keep an inventory of savings bond holdings and determine their current value.

Information is also available by mail from the Bureau of Public Debt, Savings Bond Operations Office, Parkersburg, WV 26106-1328, or by phone by calling 1-800-4US-BOND (1-800-487-2663). You can order I Bonds at most banks or through employer-sponsored payroll savings plans. Most banks also serve as paying agents to redeem I Bonds. If they redeem EE bonds, they redeem I Bonds as well.

Inflation-indexed fixed-income investments are a nice compliment to stocks or growth mutual funds in an investor’s portfolio. They reduce portfolio volatility while providing an inflation hedge. I Bonds are available in a variety of denominations and are appropriate for five to 30-year financial goals.