What are I Bonds?
I bonds are a type of savings bond issued by the US Treasury. I
bonds are designed to guarantee a real rate of return. To do this, I
bonds adjust their rate every 6 months to track changes in the level
of inflation as measured by the CPI-U. Even in periods of deflation,
I bonds protect your investment by never losing value. Since an I
bond cannot lose value and they are backed by the US government,
they are frequently chosen by investors over corporate or municipal
bonds, which could default or lose value. With I bonds, you are able
to protect your investment against inflation with the security of
savings bonds.
I Bond TermsThe US Treasury considers I Bonds to be a long term investment. As such, there are several limitations on I Bonds that must be considered when analyzing your financial goals. I Bonds have a one year minimum hold time in which the bond can not be redeemed. Additionally, bonds are subject to a 3 month interest penalty if the bond is redeemed within 5 years of the issue date. Similar to other US Treasury Bonds, I Bonds continue to earn interest for 30 years. After that time, the matured bond is worth the face value plus the interest collected over that time.
I Bond RiskUnlike stocks, corporate bonds, or other equities, I Bonds are low risk investments. The inflation component of the I Bond’s rate protects the earning power of the bond against rises in inflation over time. Even in the event of deflation, I Bonds are guaranteed to not lose value. Because I Bonds are backed by the federal government, risks associated with the issuer defaulting are extremely slim (if the government defaults, you have many more problems to worry about than your I Bonds).
Compared to Other Products EE/E Series Bonds offer different benefits based on their year of issuance, so make sure you research the correct type of EE/E Bond when comparing against I Bonds. EE Bonds purchased after May 2005 offer a fixed rate of interest based on current market rates. Many people equate current EE Bonds with Certificates of Deposit (CD) with 30 year terms. EE Bonds are also not protected against inflation, meaning the inflation rate could be higher than the rate of the bond. Unlike I Bonds, EE Bonds are purchased at half the face value. Another Treasury product designed to protect from inflation, Treasury Inflation-Protected Securities (TIPS), and can be purchased or sold at auction. TIPS are sold in terms of 5, 10, or 20 years but require a $100 minimum purchase.
I Bonds vs. EE bonds vs. TIPS - Quick Comparison
|
I bonds |
EE bonds |
TIPS |
| Maximum Purchase Limit per year |
$5,000 electronic and
$5,000 paper |
$5,000 electronic and $5,000 paper |
None |
| Minimum purchase: |
$50 for a $50 I Bond when purchasing paper bond
certificates .
$25 for a $25 I bond when
purchased electronically. |
$25 for a $50 EE Bond when purchasing paper bond
certificates.
$25 for a $25 EE bond when purchased electronically. |
$100 |
| Denominations: |
Paper bonds:
$50, $75, $100, $200, $500, $1,000, $5,000.
Electronic bonds: purchase to the penny for $25 or
more. |
Paper bonds: $50, $75, $100, $200, $500, $1,000,
$5,000, and $10,000.
Electronic bonds: purchase to the penny for $25 or
more.
|
Multiples of $100
electronically only. |
| Earnings |
A fixed rate of return
and a variable semiannual inflation rate (based on
CPI-U for March and September) are combined. |
Series EE Bonds issue
dated May 2005 and after will earn a fixed rate of
interest. |
Price and interest
determined at auction. |
| Minimum term of ownership: |
1 year |
1 year |
No minimum. TIPS can be
held until maturity or sold before maturity. |
| Interest-earning period: |
30 years |
30 years |
TIPS are issued in terms
of 5, 10, and 20 years. |
| Early redemption penalties: |
3-month interest penalty
if redeemed during the first 5 years. |
3-month interest penalty
if redeemed during the first 5 years
. |
None |
| Type of Investment: |
Non-marketable - cannot
be bought or sold in secondary securities market. |
Non-marketable - cannot
be bought or sold in secondary securities market. |
Marketable--can be
bought and sold in the secondary securities market |
| Inflation Indexing: |
Semiannual inflation
rate (based on CPI-U changes) announced in May and
November. |
N / A |
Inflation adjustments
measured by CPI-U published monthly |
|
|
Series I Bonds
