Interest Rate I Bonds

I Savings Bonds are popular with investors. This is because they offer safety, flexibility and financial advantages.

They earn interest from the first day of their issue month, which means that they start earning you money immediately. They can be redeemed at any time after a 12-month minimum holding period. This means that you are not obliged to make a long-term commitment. You can hold on to them for as short or long a time period as you want.

I Bonds are sold at face value. This means that you pay $100 for a $100 I Bond. This will then grow in value with inflation-indexed earnings for up to 30 years.

The I Bonds earning rate is a combination of two rates. There's the fixed rate which remains the same for the life of the bond and there is also the inflation rate. This is combined with the fixed rate to determine the earning rate of the bond every six months. This interest is added to the bond monthly and is paid when you redeem the bond.

Some of you may be wondering about what happens if the economy enters a deflationary state. If the variable rate of I Savings Bonds drops to zero or below, the fixed rate off-sets the negative until it hits zero. This is because I Savings Bonds are guaranteed never to drop below zero. They never lose interest or value.

For example, if your I Savings Bond has a fixed rate of 1.5% and the current variable rate is 2%, your I Bond will earn 0% - never below that amount.

Fortunately, our economies never deflate for too long and in the long term, your I Savings Bond will make you money. You can redeem the bond at any time from one year after the date of issue to thirty years later. If you redeem I Bonds before they are five years old, you will forfeit the previous three months' interest but after five years, there is no penalty to be paid.

To cash in an I Savings Bond, all you need to do is to bring it down to your local bank. It may be worth calling them in advance as some banks may not handle the cashing in of particular I Savings Bonds.