Series I Bond

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. Government Bond

    A debt security issued by a government to support government ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Series HH Bond

    A 20-year non-marketable U.S. government savings bond that pays ...
  4. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  5. Government Security

    A bond (or debt obligation) issued by a government authority, ...
  6. Current Yield

    Annual income (interest or dividends) divided by the current ...
Related Articles
  1. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  2. Personal Finance

    Taxation Rules For Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  3. Markets

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  4. Markets

    How To Invest In Corporate Bonds

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Managing Wealth

    Six Biggest Bond Risks

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

    Savings Bonds Vs. CDs: Which Is Better in 2016?

    Understand what a savings bond is, what a CD is and what sets them apart from each other. Learn why a savings bond is the right investment for 2016.
  7. Personal Finance

    Time to Cash In Your U.S. Savings Bonds?

    If your U.S. Savings Bonds are dated 1984 or earlier, they've reached maturity and stopped paying interest. Cash them in pronto and put that money to work!
  8. ETFs & Mutual Funds

    Bonds

    What bonds are: Debt securities where you lend money to an issuer (e.g., a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  9. Markets

    What Taxable Interest Must Bond Investors Report?

    Many factors impact the amount of taxable interest bond investors must report.
  10. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
RELATED FAQS
  1. What are the benefits of government bonds?

    Its true for the fact that it is one of the safest instruments to invest, but do you really get the rate of return over a ... Read Answer >>
  2. How long will it take for a savings bond to reach its face value?

    Learn essential information about U.S. savings bonds along with an explanation of the unique characteristics of this popular ... Read Answer >>
  3. How long will it take for a bond to reach its face value?

    Learn when different savings bonds reach face value, and determine the best time to cash them in to get the highest return ... Read Answer >>
  4. 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 >>
  5. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center