Series I Savings Bonds – A Sound Investment for Uncertain Times

When the stock market was breaking records every day you could mention savings bonds in most circles and the yawning would begin. Now with the recent downturn in the markets, investors are taking a second look at savings bonds as a nice secure way to gain some moderate return with virtually no risk. Originally the Treasury Department issued bonds (called war bonds or E Bonds) starting in 1935 as a very safe and secure investment for the average American. It had a guaranteed return on the original investment, and typically had a maturity period that had to be observed before redemption. These original E bonds became a very popular form of savings for a lot of people because they were backed by the U.S. government and also instilled a strong sense of patriotism in the buyers since they were supporting the war effort. The downside to these original bonds was that the interest they paid was meager compared to newer investments that became available over the years and had fallen a bit out of favor with the average investor.

In the years since, the Treasury Department has issues several new types of bonds such as EE bonds and I bonds. The EE bond was introduced in 1980 and the newer I bond was introduced on September 1, 1998. The I bond (the I stands for inflation) is an interesting investment alternative and its interest is based on two factors. The first is a guaranteed rate of return that is fixed when the bond is purchased. This rate is determined by the Treasury Department and remains constant through the live of the bond and is a guaranteed return. The second component is a variable rate that is based on inflation and is reset every six months on November 1st and May 1st. This variable rate, called the composite rate, is based largely on the Consumer Price Index for the six months prior to the bonds issuance. There are limits on how much an individual can invest in I bonds and it is limited to $5000 yearly per person of paper bonds and an additional $5000 in electronic bonds for a yearly total of $10,000. The minimum holding period for the I bond is 1 year and it can be held up to 30 years still earning interest. The only other concern is that if the bonds are redeemed before at least five years have passed since their issuance, a three month interest penalty is incurred. Since the bonds start earning accrued interest monthly as of the first of each month, buying an I bond later in the month actually gets you a few extra weeks interest. Based on the formulas above, the current annual rate of return on the I Bonds is 5.64% as of November 1, 2008.

So considering the wide universe of financial choices available to most investors today, the I bond seems like a safe choice to help balance any investment strategy. Since they are secure and guarantee a reasonable rate of return with a very flexible redemption schedule they should appeal to a lot of new and seasoned investors in these turbulent times.

Other Articles
Understanding Convertible Bonds
Convertible bonds are a great way to receive a good rate of interest with the possibility of growth. Find out more about these hybred investments.

Understanding the Fundamentals of Common Stocks
Getting started in buying common stocks for growth can be a scary thought in today´s wacky markets. However, knowing the basics of stocks can be a real boost for the conservative investor.

How to Invest Profitably in Gold
Gold has been hitting record highs recently so investors have been grabbing gold bars and coins for profit. Is there a better way to buy gold? If so, what is it? Find out here

	Series I Savings Bonds – A Sound Investment for Uncertain Times By: Rick Smith - Posted: 3/4/2009

	When the stock market was breaking records every day you could mention savings bonds in most circles and the yawning would begin. Now with the recent downturn in the markets, investors are taking a second look at savings bonds as a nice secure way to gain some moderate return with virtually no risk. Originally the Treasury Department issued bonds (called war bonds or E Bonds) starting in 1935 as a very safe and secure investment for the average American. It had a guaranteed return on the original investment, and typically had a maturity period that had to be observed before redemption. These original E bonds became a very popular form of savings for a lot of people because they were backed by the U.S. government and also instilled a strong sense of patriotism in the buyers since they were supporting the war effort. The downside to these original bonds was that the interest they paid was meager compared to newer investments that became available over the years and had fallen a bit out of favor with the average investor. In the years since, the Treasury Department has issues several new types of bonds such as EE bonds and I bonds. The EE bond was introduced in 1980 and the newer I bond was introduced on September 1, 1998. The I bond (the I stands for inflation) is an interesting investment alternative and its interest is based on two factors. The first is a guaranteed rate of return that is fixed when the bond is purchased. This rate is determined by the Treasury Department and remains constant through the live of the bond and is a guaranteed return. The second component is a variable rate that is based on inflation and is reset every six months on November 1st and May 1st. This variable rate, called the composite rate, is based largely on the Consumer Price Index for the six months prior to the bonds issuance. There are limits on how much an individual can invest in I bonds and it is limited to $5000 yearly per person of paper bonds and an additional $5000 in electronic bonds for a yearly total of $10,000. The minimum holding period for the I bond is 1 year and it can be held up to 30 years still earning interest. The only other concern is that if the bonds are redeemed before at least five years have passed since their issuance, a three month interest penalty is incurred. Since the bonds start earning accrued interest monthly as of the first of each month, buying an I bond later in the month actually gets you a few extra weeks interest. Based on the formulas above, the current annual rate of return on the I Bonds is 5.64% as of November 1, 2008. So considering the wide universe of financial choices available to most investors today, the I bond seems like a safe choice to help balance any investment strategy. Since they are secure and guarantee a reasonable rate of return with a very flexible redemption schedule they should appeal to a lot of new and seasoned investors in these turbulent times. Other Articles Understanding Convertible Bonds Convertible bonds are a great way to receive a good rate of interest with the possibility of growth. Find out more about these hybred investments. Understanding the Fundamentals of Common Stocks Getting started in buying common stocks for growth can be a scary thought in today´s wacky markets. However, knowing the basics of stocks can be a real boost for the conservative investor. How to Invest Profitably in Gold Gold has been hitting record highs recently so investors have been grabbing gold bars and coins for profit. Is there a better way to buy gold? If so, what is it? Find out here








	Return to Investment Articles

Series I Savings Bonds – A Sound Investment for Uncertain TimesBy: Rick Smith - Posted: 3/4/2009

Series I Savings Bonds – A Sound Investment for Uncertain Times
By: Rick Smith - Posted: 3/4/2009