Series I savings bond

Case Study Series I savings bonds are an easily accessible investment that provides the unusual combination of inflation protection with absolute safety of principal. The bonds are available at financial institutions or online in denominations as low as $25, and there are no purchase or redemption charges. They can be redeemed one year after purchase, although a three-month interest penalty is assessed when redemptions occur within five years of the purchase date. Redemptions after five years incur no penalty. I bonds earn a return that is a combination of a fixed rate plus the inflation rate. The fixed rate is announced each May and November and applies to all bonds issued during the six months beginning with the announcement date. This portion of earnings remains the same for the life of the bond. The inflation rate is announced each May and November, and is combined with the fixed rate to determine the earnings rate for each six-month period. Thus, the earnings rate for a Series I savings bond changes each six months. Earnings from Series I bonds can be postponed until redemption for federal tax purposes and are exempt from all state and local taxes. Overall, the Series I savings bond is a high-quality investment that offers a modest return protected against inflation.