Thursday, March 09, 2006

US Government I Bond Earning Rate 6.73%

US Government I Bond Earning Rate 6.73%

Did you know that you can earn 6.73% on US Government I Bonds. The rates is over 2.5% higher than most bank CD and almost 2% higher than the Treasury Bonds. The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. The 6.73 percent earnings rate for I bonds bought from November 2005 through April 2006 will apply for the first six months after their issue. The earnings rate combines the 1.00 percent fixed rate of return with the 5.70 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 193.3 to 198.8 from March to September 2005, a six-month increase of 2.85 percent.

Treasury’s inflation-indexed I bonds are designed to offer all Americans a way to save that protects the purchasing power of their investment by assuring them a real rate of return above inflation. I bonds have features that make them attractive to many investors. They are sold in electronic form in amounts of $25 and above, or in paper form at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, and earn interest for as long as 30 years. I bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt, and Federal income tax on I bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years.

What if I want to cash the bonds in early: Investors cashing I bonds before five years are subject to a 3-month earnings penalty. This is the same penalty that you have with a CD. I don't look at this as a negative because the rate of return is so much higher than you typical money market account or CD.

How to buy I bonds: Savers and investors can now open an on-line account to purchase I bonds in electronic form, as well as EE savings bonds and Treasury marketable securities, through the website Account holders can purchase, manage, and redeem such I bonds over the Internet 24 hours a day, seven days a week. You can also purchase them at most banks. You just need to fill out a form and write them a check.

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