There must be a touch of inflation in the air, since a few clients have been calling with questions regarding I Bonds. With the low inflationary environment of late, there hasn’t been a lot of press concerning I Bonds. But since we don't know what evil lurks around the economic corner, it may be time to review what these I Bonds are all about.

Think of I Bonds as Series EE bonds on steroids. Like Series EE bonds, they are issued by the U.S. Treasury and can be purchased at your local bank. Federal income taxes can also be deferred on the interest they earn - for up to thirty years. Here the similarity ends.

Unlike EE bonds that are sold at a discount from face value, I Bonds are sold at face value. Currently, the face value of the various denominations are $50, $75, $100, $200, $500, $1,000, $5000, and $10,000. The government says that this should make it easier to keep track of the growth of the bonds, and this is important because the bonds not only carry a nominal fixed yield, they also carry a variable semiannual inflation yield as well.

Ok, let’s slow down here a little.

First, in May and November of each year, the Treasury Department announces the fixed rate of return for new bonds. These fixed rates will continue for the life of the bond.

Also in May and November of each year, the semiannual inflation rate is announced and this rate is added to the fixed rate until the Treasury announces a new inflation rate 6 months later. The semiannual rate itself is based on changes in the Consumer Price Index for all Urban consumers.

Increases in value occur the first day of the month and interest is compounded semiannually.

The bonds will earn interest for up to 30 years, but are redeemable after just 12 months. However, if you do cash them in during the first 5 years, there is a penalty equal to 3 months earnings.

In person, you can purchase up to $30,000 of bonds annually. But, because the government almost never does things in a straightforward manner, you can purchase an additional $30,000 in I bonds by going through Treasury Direct.

Anyone with a valid Social Security Number can purchase I bonds, and they can be registered in single or joint ownership.

Series EE bonds cannot be exchanged for I Bonds.

Finally, if you’re like most Americans who have difficulty naming the various visages on U.S. currency, you’re probably going to fair no better with the 8 Americans featured on the I Bonds.

For the record, here’s the list -

$50 - Helen Keller;
$75 - Dr. Hector P. Garcia;
$100 - Dr. Martin Luther King, Jr;
$200 - Chief Joseph – Nez Perce;
$500 - General George C. Marshall;
$1,000 - Albert Einstein;
$5,000 - Marian Anderson;
$10,000 - Spark Matsunaga,

Yeah, I know. I had to look up a couple myself.

Glenn (“Chip”) Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him by email at dahlkefinancial@sbcglobal.net You may also contact him at the Living Trust Network. Its web site is http://www.livingtrustnetwork.com

Copyright 2005. Living Trust Network, LLC. All Rights Reserved.

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