Tetra Images/Getty ImagesSeries I savings bonds, which are sold by the U.S. Treasury, are a safe investment, as they guarantee a real rate of return, regardless of how the markets are performing or deflation.The I bond has a fixed rate of return plus an inflation premium. The fixed rate and the inflation premium are adjusted every May and November by the Treasury Department. But the fixed rate assigned when you buy the bond is good for as long as you hold the bond. The inflation premium ensures that you do not lose the purchasing power of your investment over time.RATE SEARCH: Compare savings rates on Bankrate.
I bonds basics
Inflation-indexed savings bond.
Fixed rate of return plus inflation premium repriced semiannually.
Value increases monthly; compounds semiannually and paid at maturity.
Investor control over payment of taxes.
I bonds may be used to pay for college tuition and fees.
Purchase denomination additionally through TreasuryDirect online.
Maximum in I bonds annually is $10,000 online through TreasuryDirect, $5,000 in paper bonds purchased with IRS tax refunds.
At a glanceHere’s how it works.Suppose you buy an I bond in December. The fixed rate that was set in November will be your permanent fixed rate. You’ll also get, for 6 months, whatever inflation premium was set in November. When June rolls around, your inflation premium will be changed to whatever rate was established in May, but your fixed rate will remain fixed.I bonds increase in value monthly, and interest is compounded semiannually. The interest accrues and is paid at maturity.You may choose to report interest each year as it accrues, or you may defer payment of the federal tax on the interest until the bond is cashed, which gives you, the investor, control over when to pay the tax.I bonds can be used to pay for college tuition and fees. Up to 100% of the interest in I bonds may be exempt from federal taxes if the bond owner pays qualified higher education expenses at an eligible institution in the same calendar year the bonds are redeemed. They may also be available through your employer’s payroll savings plan, or you can order them online.You can purchase paper I bonds with your tax refund in denominations of $50, $100, $200, $500 and $1,000. When you buy them online through TreasuryDirect, you can purchase to the penny for $25 or more.Investors may purchase up to $5,000 worth of paper I bonds per year per Social Security number. You may also purchase an additional $10,000 in electronic I bonds through TreasuryDirect.RATE SEARCH: Compare CD investments on Bankrate.
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