Inflation Adjusted Savings Bonds

Inflation is the overall increase in the price level of services as well as goods. With increase in the rate of inflation, a condition known as stagflation is reached. Stagflation, means increase in rate of inflation and consequent slowing down of the economy. When stagflation is reached, it affects investments like stocks, bonds and investments made through other investment tools. These investments have to be protected so that it does not lose its value. To protect bonds, one may opt for the treasury bonds, which are endorsed by the United States government. These are referred to as government bonds. Treasury bonds are issued directly by the government. They include treasury bonds, treasury bills, treasury notes, TIPS(treasury inflation protected securities).

Features of inflation adjusted savings bonds:

• The inflation adjusted savings bonds are non marketable securities. Inflation adjusted savings bonds are mainly meant for the individual investors. The savings bonds, which are inflation adjusted are backed by the United States government. Studies have revealed that as many as 50 million people have invested in inflation adjusted savings bonds, which totaled approximately, USD$200 billion. In addition to providing savings bonds in paper, the US treasury has also allowed electronic bonds, which are available on line.
• Secondary market for inflation adjusted savings bond is not known. However, after a year, these savings bonds can be paid off. With regard to ownership, the inflation adjusted savings bonds are registered inflation protected tools and the name of the owners are recorded on the savings bonds. Replacement of savings bonds are allowed in the event of loss or damage. Savings bonds do not have the system of coupon payment. The interest earned is calculated for the entire bond term, the interest is compounded and summed up to the bond value. The payment is made only after maturity.
• It is not obligatory to inform the Internal Revenue Service or the IRS about the income from interest earned, until the amount is cashed in. The inflation adjusted savings bonds are tax deferred investments.
• Savings bonds or I Bonds have rates, which have two parts. One part is the fixed part, which does not change over the entire bond period. The other part is inflation adjusted.