What your company should know about I bonds

I bonds are a low-risk and highly liquid (after 12 months) savings product. When a bond is highly liquid it means that you can easily access your money after you have invested it into the bond. I bonds earn interest and protect you from inflation. I bonds can be purchased much the same way as any other bond. You can go through your broker or financial institution or you can buy I bonds as part of your retirement savings and do so through a payroll deduction.

I bonds have an annual interest rate that reflects the combined effects of a fixed rate and a semiannual inflation rate. This means that they are an accrual-type security. Interest is added to the bond monthly and it is compounded semiannually. The interest on the I bond is paid when you cash the bond usually at a minimum term of 12 months later.

I bonds are an affordable. You can pay as little as $50 for a $50 bond. If you wanted to invest in I bonds long-term you could do so as an I bond can grow with inflation-indexed earnings for up to 30 years. I bonds are certainly an option worth considering if you want to protect your savings from inflation but do not want to risk investing in a more volatile market.

I bonds are U.S. Treasury securities which means that they are backed by what is called the full faith credit of the United States Government. There is no way that you could ever loose money in I bonds. Your bonds will not decrease in value even if the consumer price index goes down and the decline is greater than the fixed rate you have on your bonds. The bond is actually maintained at the rate of earnings until it again rises to the point where it can increase in value. This is yet another reason why I bonds are advantageous. Not only do I bonds protect your savings from inflation, but they protect you from loss of that saving in the event that there is significant deflation.

There are also considerable tax benefits and considerations when investing in I bonds. Interest earnings from I bonds are exempt from State and local income taxes, but are subject to State and local estate, inheritance, gift, and other excise taxes. Interest earnings are also subject to Federal income tax but that Federal income tax can be excluded when interest earnings are used to finance education. You can also defer payment of Federal taxes on your interest earnings (that remain in your I bond) for up to 30 years.

Any U.S. Citizen with a valid Social security number can buy I bonds. There is a limit on how much you can invest in I bonds each year. You can only buy up to $30,000 worth of I bonds each calendar year.

I bonds are easy to buy. You can order an I bond through a financial institution or through most investment firms. To buy an I bond all that you need to do is fill out the purchase order for the bond and pay for the bond. I bonds are also available for purchase through many employer-sponsored payroll savings plans. Once you have ordered and paid for your I bond you will receive a certificate of ownership of that I bond in the mail. This usually takes a couple of weeks. In most cases the institution that you purchased the I bond from can also be the paying agent for that bond. Meaning, when you have held your I bond for at least 12 months, you can redeem that bond for cash through the same institution that you bought it from.