Harness Money

What is a Series I Bond?

A Series I bond is a savings bond issued by the United States Department of the Treasury. It is a type of savings instrument designed to help individuals save money and protect against inflation. Series I bonds offer a combination of a fixed interest rate and an inflation-adjusted interest component.

Here are some key features of Series I bonds:

1. Interest Rate: Series I bonds have two components of interest. The first component is a fixed interest rate that remains constant over the life of the bond. The second component is a variable interest rate that adjusts every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U), which measures inflation.
2. Inflation Protection: The inflation-adjusted interest component ensures that the bond’s value keeps pace with inflation. If there is inflation, the bond’s interest rate will increase, providing additional returns to bondholders. Conversely, if there is deflation, the interest rate can decrease, but it will never fall below zero.
3. Purchase and Maturity: Series I bonds can be purchased directly from the U.S. Treasury through TreasuryDirect, an online platform for buying and managing Treasury securities. The bonds have a maturity period of 30 years, but they can be redeemed as early as one year after purchase. However, if redeemed within the first five years, there is a penalty equivalent to the last three months of interest.
4. Tax Considerations: Interest earned on Series I bonds is subject to federal income tax, but it is exempt from state and local taxes. However, if the bonds are used for educational expenses, the interest may be tax-exempt at the federal level.

Series I bonds are considered low-risk investments because they are backed by the U.S. government. They can be an attractive option for individuals looking for a savings vehicle that provides some protection against inflation while maintaining the safety of a government-backed security.