Dear Harry: I have always invested in stocks, but not always to my advantage. Recently, I've been worried too often about the market, so I decided to stick to U.S. securities for any new money that I invest. I have a few EE bonds, but they offer no inflation protection. I am considering I bonds. I'd like to know about how to buy them, how the interest is calculated, how long they last, how the interest is reported for taxes, etc. Thanks.
What Harry says: You can buy I bonds at most banks, or you can buy them directly from the Treasury. They are sold at face value in denominations from $50 to $10,000. However, you can only buy up to $30,000 in any calendar year (double that if you're married). The interest is calculated in two parts: a fixed rate over the life of the bond, and that is quite low; and an "inflation rate" that changes every six months. That gives you a pretty good return if we do get hurt with inflation. The bonds' value is increased every month and compounded semiannually. They can be held for up to 30 years. If you cash in during the first five years, you lose the last three months of interest, because they are intended to be long-term investments. They are the safest investments you can make because they're direct obligations of the United States. The interest is tax-exempt from local and state taxes, but not from federal income tax. The reporting of the interest may be deferred until the bond is redeemed.