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Series I 
Savings Bonds

Series I Savings Bonds are designed for those seeking to protect the purchasing power of their investment and earn a guaranteed real rate of return.

Type of Security

I-Bonds are an accrual-type security.  There are no periodic interest payments to the owner.  The interest, which varies with the inflation rate, is added monthly to the principal over the 30-year life of the bond, or until the bond is cashed out. 

An I-Bond can be purchased at any time of the year.  The issue date is the first day of the month in which it is purchased.  The bonds are sold at face value for as little as $50 per bond.  You can purchase up to $30,000 worth of paper I-Bonds in your name and Social Security number each calendar year.  In addition, you can purchase up to $30,000 through TreasuryDirect, for a total of $60,000 per year.

Inflation Rate Basis

The inflation rate is based on changes in the Consumer Price Index for all Urban consumers (CPI-U), as reported by the Bureau of Labor Statistics.  The semi-annual rate announced in May is a measure of inflation over the preceding October through March.  The semi-annual rate announced in November is a measure of inflation over the preceding April through September. 

The value of the I-bond is protected against loss due to deflation.  For example, if the CPI-U is negative during some period by an amount greater than the fixed rate, the redemption value of your I-Bonds will remain unchanged until the composite rate is again greater than zero.

Earnings Rate

The earnings rate of an I-Bond is a combination of two separate rates:  a fixed rate of return and a variable semiannual inflation rate.  The fixed rate remains the same throughout the life of the I-Bond, while the semi-annual inflation rate normally changes every six months. 

The fixed rate on newly issued I-Bonds is set by the Treasury each May and November.  The fixed rate announced in May of a given year applies to I-Bonds purchased between May 1 and October 31 of that year.  The fixed rate announced in November of a given year applies to I-Bonds purchased between November 1 and April 30 of the following year. 

Here's how the annualized composite rate for I-Bonds was determined for those purchased during May thru Oct 2003:

Composite rate = (Fixed rate + 2 x Inflation rate + Inflation rate x Fixed rate) x 100%

Fixed rate = 1.10%
Inflation rate = 1.77%
Composite rate = (0.0110 + 2 x 0.0177 + 0.0177 x 0.0110) x 100% = 4.66%


I-Bonds are exempt from state and local income taxes, but are subject to federal income taxes.  For federal returns you may report the interest income on either the cash basis or accrual basis.  Under the cash basis, federal tax is not due until the bond is sold or is redeemed at maturity by the Treasury.  Under the accrual basis, you report interest each year as it accrues and pay the income tax incrementally.


You can buy I-Bonds from most banks, credit unions, or savings institutions.  These institutions accept funds and purchase orders, and forward the order to a Federal Reserve Bank where the bonds are issued and mailed according to your instructions.  You should receive your bonds within 15 business days and they begin earning interest from the first day of the month in which you buy the bond.

If you open an account with TreasuryDirect, you can purchase, manage, and redeem I-Bonds with your Web browser anytime -- no paperwork or paper bonds, and no fee.  Payments are debited and credited by wire between the Treasury and your personal bank account.

Cashing Out

You can cash I-bonds 12 months after the issue date.  When you cash the bonds, you will receive the original investment plus the earnings.  However, I-Bonds are meant to be longer-term investments. So, if you redeem an I-Bond within the first five years, there is a 3-month earnings penalty. For example, if you redeem an I-Bond after 18-months, you'll get 15 months of earnings. 

Registration for I-Bonds

There are three primary ways to register I-Bonds:

Single ownership: Only the registered owner can cash the I-Bond.

Co-ownership: Two individuals' names appear on the I-Bond; either person may cash the I-Bond without the knowledge or approval of the other. Upon the death of one co-owner, the other becomes the sole owner of the I-Bond.

Beneficiary: Only the owner may cash the I-Bond during his or her lifetime. The beneficiary automatically becomes the sole owner of the I-Bond when the original owner dies.

For further detail, visit http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

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