Nevada County Picayune and Gurdon Times Newspaper Archive

Saving Bonds Are Examined

Since 1997 a new series of United States Savings Bonds, I bonds or inflation-adjusted index bonds, have been available for consumers. The letter I stands for inflation.

I bonds are bought in eight denominations  $50, $75, $100, $200, $500, $1,000, $5,000 or $10,000. According to Judith Urich, family resource management specialist of Cooperative Extension Service, University of Arkansas, the smaller amounts make these a good choice for a modest investment held for six months or longer.

The first I bonds paid a guaranteed rate of interest, 3.45%. For I bonds bought since September 1998 the guaranteed or fixed rate has ranged from 3.6% to 3.89%. The guaranteed interest rate for new bond purchases is adjusted every six months for inflation for bonds purchased during that period. I bonds bought between May 1 and October 31 have a fixed rate of 3.6%. When the adjusted rate for inflation is added during this six-month period the composite earnings rate is 7.49%.

The composite rate is good for six months, when a new composite rate is calculated based on current inflation figures. If inflation declines, I bonds will pay less interest, but never less than the guaranteed rate.

I bonds have other advantages:

They are backed by the government and are safe.

Unlike certificates of deposit or passbook savings accounts you can defer federal taxes on earnings for up to 30 years. That way you can redeem bonds in a year when your income is less and your tax rate on the interest earned may be lower.

All interest on I bonds is exempt from state or local taxes.

Interest on I bonds may be tax exempt if used for post-secondary education expenses, such as tuition and fees for approved college or vocational courses. The tax exempt benefit applies if your adjusted gross income is less than certain maximums (for tax year 2000, $69,110 for single filers; $111,100 for joint returns).

I bonds also have disadvantages:

For the first six months the bonds can not be cashed in.

If you cash in a bond after six months and within the first five years, you will forfeit three months' worth of earnings.

I bonds can be owned by one person, jointly with right of survivorship, or held in beneficiary form. Unlike other securities, minors may own I bonds.

I bonds can be bought at most banks, credit unions or savings institutions. A variety of savings programs such as bond-a-month plans, payroll savings plans, home electronic banking plans or easy saver are available to encourage regular savings. Regardless of how you buy, I bonds start to earn interest at the beginning of the month in which you buy the bond.

To learn more about I bonds, ask for brochures at your local bank or visit the savings bond web site, www.savingsbonds.gov/ and scroll to "I Bonds."

For more information on other savings options contact the Clark Country Extension office in Arkadelphia at 246-2281.