Close

Inflation Protection: I Savings Bonds

Inflation Protection: I Savings Bonds Splash image
I Savings Bonds are a vehicle for protecting fixed-income investments against inflation.

I Bonds are accrual securities, which means that you do not receive interest payments (coupon income) until you redeem the bonds. But taxes on interest can be deferred until the bonds are redeemed or until maturity-that is, for up to 30 years. In addition, interest income is exempt from state and local taxes.

The earnings rate of I Bonds is a combination of two separate rates: a fixed rate of return, and a variable semiannual inflation rate. The fixed rate is set when the bonds are initially sold, and it remains the same throughout the life of the bond. But the semiannual inflation rate adjustment is reset every six months, based on the CPI-U.

In the unlikely event that deflation were to occur, the value of the bond would remain at its pre-deflation level. The combined rate does not simply add the two rates: They are combined according to a complex formula explained on the Treasury's Web site.

...To continue reading this article you must be registered with AAII.

Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
JOIN TODAY for just $29.
Log in
Already registered with AAII? Login to read the rest of this article.

Register for FREE
to read this article and receive access to future AAII.com articles.
  


Discussion

No comments have been added yet. Add your thoughts to the discussion!

You need to log in as a registered AAII user before commenting.
Create an account

Log In