Series I Bonds: Interest for 30 Years

Dear Dr. Don,

I have had about $5,000 in Series I bonds since about 2002. Are they still earning interest? If so, at what rate, and is the interest taxable for the year the interest was earned, or when I cash them in?

-- Jack Juncture

Dear Jack,

The Series I savings bonds earn interest for 30 years from their date of issuance. Yours have a long time before maturity. Depending on when you bought the I bonds in 2002, you're earning the inflation rate as measured by the Consumer Price Index, plus 1.6 percent to 2 percent. That's great, especially compared to the current rate of zero percent plus inflation. The best way to find out the bond's current rate is to use the government's savings bond calculator.

You have the choice whether you want to defer the federal income tax due on the investment earnings until the bonds are redeemed or mature, or to declare the interest earnings each year. You can decide to change from the tax-deferred approach to annual reporting, but you can only change once. After the change, you have to keep reporting the interest income for all the savings bonds that you own on an annual basis. The TreasuryDirect Web page "Series I Savings Bonds Tax Considerations" discusses these options in greater detail.

If you have a college-bound member of your household, you could look into whether you qualify for the education tax exclusion when redeeming the bonds. If that's the case, the tax deferred approach makes sense for your I bonds. Learn more about the education tax exclusion on the Treasury Direct Web page, "Education Planning."

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