DEFINITION of 'Series I Bond'

A non-marketable, interest-bearing U.S. government savings bond that earns a combined:
1) fixed interest rate; and
2) variable inflation rate (adjusted semiannually).
Series I bonds are meant to give investors a return plus protection on their purchasing power. Additionally, the interest income is only taxable at the federal level, not at the state and local levels. Most Series I bonds are issued electronically, but it is possible to purchase paper certificates with a minimum of $50 using your income tax refund.

BREAKING DOWN 'Series I Bond'

The two types of interest that a Series I bond earns are 1) an interest rate that is fixed for the life of the bond; and 2) another rate that is adjusted each May and November based on changes in the nonseasonally adjusted consumer price index for all urban consumers (CPI-U). Series I bond interest is compounded every six months.

Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value can’t decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit. Corporate and municipal bonds, however, can lose value; with this risk comes a higher return.

Series I bonds can be issued in any amount between the minimum and maximum purchase thresholds. The minimum purchase is $25, and the maximum annual purchase is $10,000 per Social Security number. I-bonds can be held for as little as one year or as long as 30 years, but if they are sold after fewer than five years, the holder sacrifices the last three months worth of interest.

Sometimes I-bond income is also tax free at the federal level if it is used to pay for higher education. When you sell an I-bond and use the proceeds to pay for qualified higher education expenses at an eligible institution in the same calendar year, the interest is exempt from federal income tax.

RELATED TERMS
  1. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
  2. Government Bond

    A debt security issued by a government to support government ...
  3. Series EE Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  4. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
  6. Series HH Bond

    A 20-year non-marketable U.S. government savings bond that pays ...
Related Articles
  1. Investing

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  2. Investing

    The 4 Safest Investments Right Now

    If you have money that you can't lose, these options are a low-risk solution to preserving principal.
  3. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  4. Investing

    How Rising Interest Rates Impact Bond Portfolios

    A look at the impact that changing interest rates - rising or falling - have on bonds and what investors need to consider.
  5. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  6. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  7. Investing

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  8. Investing

    What Taxable Interest Must Bond Investors Report?

    Many factors impact the amount of taxable interest bond investors must report.
RELATED FAQS
  1. Where can I buy government bonds?

    The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ... Read Answer >>
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  3. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates ... Read Answer >>
  4. What is the difference between EE and I Bonds?

    Read about the similarities and differences between the EE and I savings bond programs created by the U.S. Department of ... Read Answer >>
  5. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  3. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  5. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  6. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
Trading Center