by Kevin Thalersmith

Created on: March 05, 2010

For conservative investors, inflation is the number one destroyer of the value of money.  These investors hold mostly bonds, which sometimes yield less than the amount of inflation.  Savings bonds, while usually not used as a typical investment, also face this problem over their long maturities.  The U.S. Treasury recognized this and issued a new bond that removes some of the downside from inflation.  These saving bonds are called Series I Savings Bonds.

What are Series I Savings Bonds?

As said above, Series I savings bonds are designed for the bondholders to not lose that much money from the effects of inflation.  These bonds are sold in different denominations depending on how they are purchased.  Online bonds cost a minimum of $25 and can be bought in any denomination within a penny, up to $5000.  Paper bonds purchased must be in the denominations of $50, $75, $100, $200, $500, $1000, $2000, or $5000.  Unlike most savings bonds, buyers pay the full denomination for the bond.  I savings bonds come with two different interest rates: a fixed rate and an inflation rate.  The interest rate investors get paid is based on a formula that combines both rates in a composite rate.  While the inflation rate can be negative in deflationary periods, the bonds will never lose money due to deflation.

Buying Series I Bonds: Electronically

The easiest way to buy Series I savings bonds online is to use Treasury Direct, a site directly run by the government.  Investors can own an account on Treasury Direct where they hold all their bonds, whether they are savings bonds, treasury bonds, treasury bills, or any other U.S. treasury product.  The site also lets investors redeem their bonds without the need to deal with a bank or other financial institution.  Using this method, buyers can buy any denomination of bond that’s above $25 dollars, within a penny.  This means electronic bonds with value like 100.06 can exist.  A maximum of $5000 of savings bonds can be purchased in one calendar year (this also applies to paper bonds.)    

Buying Series I Bonds: Paper   

There are two main ways to buy paper Series I savings bonds; both involve using a bank or another financial institution.  Investors can either go to the bank and order a bond or purchase the bond using a bank’s internet system.  Most banks have direct access to the Treasury and can easily order

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