It is important when deciding how and where to invest your savings that you understand the options available to you. While the economy is constantly changing there are some low-risk investments that appeal to investors who are balancing their portfolio or simply unwilling to place money in higher risk vehicles.

I Bonds are basically savings bonds that are issued to consumers by the U.S. Treasury. Backed by the U.S. government, there is virtually no risk of default. The interest rate for the I Bond is adjusted by the changes in the inflation rate. I Bonds have a maturity of five years, however you are able to redeem them earlier than that (minimum twelve month holding period) if you are willing to forfeit the earned interest for the previous three months. After five years an I Bond can be redeemed without penalty and all interest earned is exempt from local and state income tax. Here we look at frequently asked questions regarding I Bonds.

Where can I purchase I Bonds?

I Bonds can be purchased electronically through the government website TreasuryDirect.gov or in person at most financial institutions. There is also an option online to convert existing paper savings bonds to electronic securities using the SmartExchange^sm program.

How much will it cost?

I Bonds are sold at face value which means if you want to invest $100 it will cost you $100. When purchasing online you must invest a minimum of $25. Purchased in person at a financial institution, I Bonds are available in the following denominations; $50, $75, $100, $200, $500, $1,000 and $5,000. The maximum amount of I Bonds that can be purchased in one year is $5,000.

What are the eligibility requirements to purchase I Bonds?

Unlike some other investment vehicles, there are no income restrictions or complicated exclusions with I Bonds. To buy an I Bond you must only be 18 years of age and have a valid social security number.

How are interest rates determined?

The interest rate for the I Bond is actually determined by combining two different rates; the fixed rate and inflation rate. The fixed rate is announced in May and November of each year and will apply to all bonds issued during that period. The fixed rate will remain the same for the life of the I Bond. Added to the fixed rate is the inflation rate which is based on the Consumer Price Index for all Urban Consumers. This rate is also announced each year in May and November.

As to whether or not an I Bond is a good investment, it all depends on what type of risk and return you are looking for when investing your money. The I Bond may not offer the biggest return, however if you are looking for a low risk investment that is fairly liquid, this is a good option to consider.