I Bonds are a type of savings bond issued by the U.S. Department of the Treasury. These bonds work by accumulating interest monthly. That interest is compounded semiannually, meaning it’s added to your principal amount, and it too earns interest. Federal income tax on the interest can be deferred until you redeem the bonds. Interest on I bonds is exempt from state and local income taxes.
The interest rate on I bonds comprises both a fixed rate, which remains constant, and a variable rate that is set twice a year by the Treasury Department. This variable rate is based on the inflation rate, and it’s designed to help I bond holders keep up with the rate of inflation.
I Bonds offer a safe, low-risk investment option to investors who want to secure their future. Unlike other investments, these bonds offer a fixed rate of return plus an inflation-linked rate. This ensures that your money grows, even when the stock market is volatile. I Bonds are also government-issued bonds, so you can’t lose your principal and they are designed to help investors keep up with inflation.