Use Your Tax Refund to Fight Inflation

Use Your Tax Refund to Fight Inflation

By Dave Carpenter, AP Personal Finance Writer

CHICAGO (AP) — Uncle Sam wants you — to save more.

A new option added to tax forms this year allows you to designate part or all of your federal income tax refund to purchase paper U.S. savings bonds known as I-bonds.

Consider it a well-meaning nudge from the government, which knows that many Americans are setting themselves up for trouble by not building adequate nest eggs for retirement.

I-bonds may not be for everyone, and experts may debate whether they are the best place for your investment to grow. But it's hard to criticize this new option — it's almost always a good idea to save more.

In this installment of "Your Money," we answer questions about the I-bond.

Q: What exactly are I-bonds?

A: They are inflation-linked government savings bonds sold by the U.S. Treasury, formally called Series I savings bonds (the "I'' is for inflation). They pay a fixed rate of interest as well as an adjustable component, which resets every May and November to reflect the change in the Consumer Price Index.

I-bonds earn interest for 30 years and are meant to be held for the long term. They cannot be redeemed in the first year after you buy them, and if you redeem them in less than five years you'll forfeit interest from the three most recent months.

They also are available either in paper or electronic form through the Treasury site www.treasurydirect.gov. But this is the first time you can have your refund diverted directly into savings bonds.

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