I bonds may be purchased directly from the Treasury or from commercial banks. They are also often available through employee savings plans. And in recent years, they have been offered over the internet through some online brokers, and through the federal government.
When you buy an I bond, you receive a registered savings bond certificate. There is no secondary market for savings bonds. They can't be sold or even given away. I bonds are geared to small investors and come in denominations of $50, $75, $100, $200, $500, $1000, $5000, $10,000. Investors may not purchase more than $30,000 worth of Series EE U.S. Savings Bonds per year, totaling a maximum of $60,000 annually. I bonds can earn interest for a maximum of 30 years from the issue date.
There is a penalty for cashing in your I bond before it is five years old. The penalty is a deduction of three month's interest in the final payout. You are also prohibited from cashing in I bonds within 12 months of purchase.
I bonds are very simple, predictable investments. Because there is no secondary market for I bonds, there's no concern about trading losses, and because they issued and backed by federal government, there's no concern about loss of capital investment. The biggest concern would be deflation. In a period of deflation, the return from I Bonds could drop to 0 percent. However, deflation has not been a factor in the Unite States in more than a century, so the risk of deflation cutting your return to zero would be very low. However, a low inflation rate could keep your returns at a very low level.
The best to buy I bonds would be during a period of rising inflation. Because the interest rate rises as inflation rises, I bonds would work better during high inflation than fixed-rate securities, which pay the same interest rate through maturity - which can be for up to 30 years.
By contrast, the worst time to buy I bonds is when inflation is low and falling. During times of declining inflation, the return on I bonds declines as well. At those times, you would be better served to buy a fixed-rate bond, and lock into a guaranteed long-term rate.
Monitoring your I bonds
Because you can't sell your I bonds on a secondary market, their prices never change. However, the yield changes every six months, so you might want to find out what interest rate your bond is paying for that period. You can find current rates and volumes of other information about savings bonds and other governments at the federal government's own web site.
