I
Bonds
I Bonds are
issued by the U.S. Government and help protect your investment from
the effects of inflation. They are an accrual-type of security whereby
interest is added to the bond monthly and is paid to the investor
upon redemption.
I Bond interest
rates have two parts: 1) a fixed-rate that lasts for 30-years; 2)
an inflation rate that changes every six months based on changes
in the Consumer Price Index for all Urban Consumers1
(CPI).
The semiannual
inflation rate announced in May is the change between the CPI figures
from the preceding September and March; the inflation rate announced
in November is the change between the CPI figures from the preceding
March and September. Interest accrues monthly and compounds semiannually.
I Bonds can
be redeemed any time after a 12-month minimum holding period but
a penalty of the three most recent month’s interest will be
charged if redeemed within the first five years.
Tax
Considerations
Any increase
above the purchase price of an I Bond is considered interest, which
is subject to Federal taxes but exempt from State and local income
taxes. You can postpone the I Bond’s accumulated interest
for Federal income tax purposes until you redeem the bond or the
bond stops earning interest 30 years from issuance.
1 Additional
information about the Consumer Price Index can be found at www.bls.gov
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