Certificate of Deposit rates are at an all time low. As you look at various options like money market account and savings account, there is no other alternative other than going into a Savings Bond.
You may have come across a I Bond which is a good alternative to the various financial products out there. I Savings Bonds are issued by the Treasury and works similar to certificate of deposits. However, interest rates fluctuate depending on six-month inflation rates. These are low risk, liquid savings product. You can purchase 1 Bond with your IRS refund via Treasury Direct.
I Bond current rate through October 31, 2012 stands at 2.20%. You can make a minimum purchase of $50 when purchasing paper bond certificate with your IRS tax refund and a maximum of $5,000. However, if you purchase I Bond electronically at Treasury Direct, the minimum allowed is $25 and a maximum of $10,000.
When you purchase I savings bonds, you have the opportunity to earn interest for up to 30 years and have the option to redeem in 1 year. However, when you redeem early, you have to be mindful of its corresponding costs. If you choose to redeem before 5 years, you forfeit the three most recent months’ interest your I Bond earns. But, if you redeem after 5 years, there is no penalty.
There are various things to consider also when purchasing I Savings Bonds:
1. It is subject to tax under the Revenue Code but are exempt from State tax except for estate or inheritance taxes.
2. Interest earnings are subject to Federal Income Tax, but maybe excluded when used to finance education.