The face value for the electronic inflation linked savings bonds is US$ 25 and above and the face value of the paper inflation linked savings bonds ranges from US$ 50 to US$ 10,000. The inflation linked savings bonds or I Bonds increase in value according to the inflation linked earnings (same as TIPS or Treasury Inflation-Protected Securities) for a maximum term of 30 years.
The holders of inflation linked savings bonds are entitled to receive interest once every month and the interest is accumulated or added together two times every year. The complex rate of interest has two constituents: a warranted or secured fixed rate that does not vary in the term period of 30 years, as well as a half yearly inflation rate, the adjustment of which is done two times in a year.
In spite of periods of deflation, the composite rate of interest is secured in such a way so that it cannot be less than zero or negative. This suggests that the redemption value of an inflation linked savings bonds cannot decrease.
The substantial distinction between the TIPS and the inflation linked savings bonds are that the inflation linked savings bonds hold the total amount of interest that is combined within the bond, inflation linked savings bonds are tax-deferred investments and bear the protection against value loss, and on the other hand, the TIPS disburse a half yearly coupon rate and carry moderately complicated tax applications, are susceptible to value loss and usually carry an increased fixed rate. So inflation linked savings bonds are more popular than the TIPS.
