United States Savings Bond (I-Bond) Bond Review

 There are several types of US Savings Bonds available of investors, and the I-Bond Series is designed to protect investors from inflation.  First issued in 1998, this bond is quite different from the much-better-known EE Series US Savings Bonds (http://www.viewpoints.com/EE-Series-US-Savings-Bond-review-41801).  And depending on your investment strategy, it may be the right choice for a low-risk investor. 

Current interest rate - 3.36% interest  

I Series US Savings Bonds have a combined interest rate composed of a fixed rate plus a variable rate based on the Consumer Price Index. The fixed rate remains unchanged until the bond reaches final maturity in 30 years. But the variable rate will go up and down every 6 months based on the rate of inflation. If inflation goes up, this bonds interest rate will go up. But if inflation is less than zero, the variable rate is subtracted from the fixed rate. Yikes! 

Currently the I-Bond is taking a battering because its fixed rate of 0.30% is quite low amd they paid zero interest as recently as mid-2009. The good news is that the rate can never go below zero and that the US Treasury acks-up your initial investment. But the bad news is that currently you won't earn one red cent on this investment for at least the next 6 months, when rates will be recalculated.

Features 

The I-Series Savings Bonds can be bought at face value of the bond from most banks or electronically at TreasuryDirect.com . The bonds are issued in the following values: $50, $75, $100, $200, $500, $1,000 and $5,000.  It will earn interest for 30 years and can be cashed-in after just 1 year.  Like other savings bonds, I-Bond earnings are exempt from state income taxes. 

The I-Bond has some positive points, as follows: 

• No risk of losing initial investment
• Inflation safeguards
• Easy to buy
• State and local tax exempt 

Unfortunately, this bond also has some distinct disadvantages, as below: 

• Earnings could fall to zero
• Fixed rate is usually low
• Eventually stops earning interest
• Some cashing-in (redemption) restrictions 

I currently owe a few I-Series US Savings Bonds and was planning to buy more since they were earning over 5% interest annually. However, since these bonds now have a vey low interest rate I see them as a mediocre investment. You may be better off with the very-low rates paid on EE Savings Bonds or a regular bank account. 

Some investors may be willing to stock-up on I Bonds under the assumption that if inflation jumps (which many believe will eventually happen) they will have investments that earn good money. In such cases, this bond would be a good choice compared to the EE Bonds. However, that could be years away. If condition change I plan to update this review, but as of now I cannot recommend an investment that does not pay anything to an investor, even if the initial principal cannot be lost.