i bonds

U. S. savings bonds were first offered to the public in 1935. During WW II they were called war bonds. Citizens continue to use savings bonds today for long term savings goals.

I savings bonds offer buyers protection from inflation and deflation. The rate of return is computed using two rates. One is a fixed rate of return that remains the same during the term of the bond. The fixed rate of return is based on the prevailing interest rates when the bond is issued. The second rate is calculated every six months based on the Consumer Price Index (CPI), a hypothetical basket of consumer goods used to determine the rate of inflation. The change in the CPI determines the interest rate for the second part of the I savings bond rate of return. This second part is posted to the bond's balance every May and November.

I savings bonds also protect savers from deflation with the fixed rate of return part of their total return. Deflation is the opposite of inflation, when the CPI goes below zero and could cause loss of value in the principal of the bond and a loss of interest paid on the bond. An I savings bond will always receive the fixed rate of return no matter what is happening to interest rates or the CPI at any given point in time. The principal is guaranteed by the U. S. Treasury and will not decline.

Using an I series bond to fund tuition and other college costs is another way these bonds help people maximize their savings. Effective January 1990, the Education Savings Bond Program allows the exclusion of part of the interest income from an I savings bond from federal income tax. Visit irs.gov for more information on I savings bonds and education.