By designating a portion of your tax refund (up to a maximum of $5000) to buy U.S. Savings Bonds, you can build long-term savings and assets. The purchase of savings bonds is one way to start or increase your overall savings. Simply complete a Form 8888, Allocation of Refund, when preparing your tax return (or tell your preparer that you would like to choose this option). If you purchase a Savings Bond with your tax refund you will receive paper bonds in 2012, in future years all Savings Bonds will be available on-line exclusively.
Series I bonds are sold at face value (a $50 bond costs $50), in $50 increments and they earn interest for up to 30 years. They can be redeemed for principal and accrued earnings anytime after the first 12 months from when they are purchased. If a savings bond is redeemed within the first five years, the three most recent months’ interest will be forfeited. After five years, no interest forfeit penalty will apply when bonds are redeemed.
Series I Bonds pay interest based on a combination of a fixed rate (which remains the same throughout the life of the Savings Bond) and a semiannual inflation rate which is updated each May and November. Savings Bonds accrue interest until redeemed or until they reach their final maturity in 30 years.
You can now buy savings bonds for yourself as well as two other people, including children and grandchildren! Bonds purchased for others can be purchased for the other individual outright or as a co-owner or a beneficiary. Taxpayers who purchase Savings Bonds without a bank account may receive the remainder of their refund in the form of a paper check. It’s easy – just ask your tax preparer!