I BOND FACTS

I Bond Interest Rates

Current rate through April 2010: 3.36%

I Bond interest rates have two parts:

• A fixed rate that lasts for 30 years
• An inflation rate that changes every six months

How the Treasury Sets Composite Rates

The U.S. Treasury combines fixed rates and semiannual inflation rates to determine composite earnings rates. An I bond's composite earnings rate changes every six months after its issue date.

Here's how they set the composite rate for I bonds issued November 2009 - April 2010:

Features

• I Bonds are based on a straightforward idea. They're sold at face value and grow with inflation-indexed earnings for up to 30 years.
• I Bonds are affordable. You can invest as little as $50 or as much as $30,000 per year in paper I Bonds. In addition, you can invest as little as $25 or as much as $30,000 per year in electronic I Bonds sold through TreasuryDirect.
• I Bonds are safe. They're U.S. Treasury securities backed by the full faith and credit of the United States Government.
• I Bonds have tax advantages. You can defer Federal taxes on earnings for up to 30 years, and I Bonds are exempt from state and local income taxes. The best part is you don't need to do anything to get these benefits--they're built right into I Bonds.
• I Bonds will usually increase in value every month, and interest is compounded semiannually.
• I Bonds are liquid. You can cash I Bonds anytime after 12 months though early redemption may result in penalties.

Tax Advantages of I Bonds

• Earnings are exempt from both state and local income taxes but may be subject to other forms of state and local taxes.
• Federal taxes can be deferred until redemption, final maturity (30 years after issue date), or other taxable disposition, whichever occurs first. (Tax deferral applies to both components of the earnings rate--fixed rate earnings and semiannual inflation rate earnings.)
• Special tax benefits are available to qualified owners of I Bonds under the Education Savings Bond Program; however, continued tax deferral through an exchange for Series HH bonds isn't available.