The I Bond program was created in 1998 to protect investors from inflation. They are a valuable asset to have in times of economic difficulty because they accrue interest just like a savings account. Like a savings account they are a liquid asset but they have greater earning potential, especially during times of economic hardship. They can be obtained in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000 (Philip Brewer).

I Bonds

I Bonds are sold at their actual value. A $50 I Bond is purchased for $50. They can be purchased from a variety of financial institutions, including banks and can only be cashed at banks. I Bonds are also able to be cashed one year after they’ve been purchased. However, a penalty fee is deducted for any I Bond cashed before five years.

People choose to buy I Bonds for several reasons. They are safe during turbulent economic times. They are an easy and cost-effective investment option because bonds can purchased in amounts as small as $25. They are also an excellent option for educational funding because the interest is exempt from taxation when used for educational purposes.

Series EE and Patriot Bonds

There are currently three series of United States savings bonds; I, EE, and Patriot bonds. EE or E bonds that were purchased between 1997 and 2005 earn a variable rate of return. EE bonds issued after May 2005 earn a fixed interest rate. Interest is added monthly as EE bonds are an accrual-type security. Paper bonds are sold at half of the initial value. Electronic bonds are sold at full face value. They can earn interest for up to 30 years. Like I Bonds, they can only be cashed after one year and a penalty applies for cashing them in less than five years. The penalty is the loss of the previous three months of interest (Treasury Direct).

Patriot bonds are essentially the same as EE bonds but they have the word “Patriot Bond” stamped on them. Patriot bonds became available for purchase in mid-winter of 2001. The proceeds from Patriot bonds are not specifically used for any war-funding (Savings Bonds).

Current Rates for I Bonds

I bonds earn interest the first month that they’re purchased. Interest is added to the bond monthly and is paid upon redemption of the bond. The earnings rate is a combination of a fixed rate and an inflation rate. The fixed rate is announced twice annually; May and November. The inflation rate is based upon the changes in the CPI-U (Consumer Price Index for all Urban Consumers). The rates are combined to determine the total earning rate of the bond every six months. (Treasury Direct)

Sources:

• Philip Brewer – WiseBread.com
• TreasuryDirect.com
• SavingsBonds.com