are i bonds good investments 
essentially risk freeinflation protectioninterest is exempt from state and local taxesinterest can be tax free if used for educationcannot be bought and sold on secondary marketlimited dollar cap per person per yearmust be held for at least 1 yearforfeit 3 months interest if redeemed within 5 yearscomparatively low interest rate vs riskier investmentsone of the most significant benefits of series i bonds is the exceptionally low risk associated with them as they are backed by the full faith and credit of the united states government investors can have confidence in the safety and stability of their principal investment another key advantage of i bonds is their ability to protect purchasing power against inflation the variable inflation rate component of the bond s interest rate is adjusted semi annually based on changes in the cpi this means that as inflation rises the interest rate on i bonds also increases helping to preserve the real value of your investment over time in terms of tax benefits i bonds offer several additional advantages the interest earned on these bonds is usually exempt from state and local taxes which can be particularly appealing to investors in high tax states additionally if the proceeds from i bonds are used to pay for qualified higher education expenses the interest may be exempt from federal income taxes as well 4however there are some drawbacks to consider before investing in i bonds with their safety comes a comparatively lower return comparable to a high interest savings account or certificate of deposit cd one main limitation is that these bonds cannot be bought or sold on the secondary market this means that once you purchase an i bond you are committed to holding it until maturity or redeeming it with the treasury subject to certain restrictions liquidity is another factor to consider i bonds must be held for a minimum of one year before they can be redeemed which may not be suitable for investors who require more flexible access to their funds furthermore if i bonds are redeemed within the first five years investors will forfeit the most recent three months of interest as a penalty 5another potential downside is the purchase limit investors are limited to purchasing a maximum of 10 000 in electronic i bonds per year for each social security number the minimum purchase amount is 25 6 an additional 5 000 may be purchased as paper i bonds this cap may be restrictive for investors looking to allocate a larger portion of their portfolio to this type of investment lastly while i bonds offer a relatively attractive interest rate especially during periods of high inflation they may not provide the same long term growth potential as other investment options such as stocks or real estate investors should carefully consider their financial goals and risk tolerance when deciding whether to include i bonds in their portfolio series i bonds and interest incomeinterest income for series i bonds is taxable at the federal level but not at the state and local levels the series i bond is a zero coupon bond meaning that no interest is paid during the life of the bond the interest is instead added back to the value of the bond and earns interest on interest the bondholder has the option of selecting one of two methods of taxation the cash method or the accrual method 7under the cash method tax is only applied when the bonds are redeemed therefore a taxpayer that holds a bond for seven years before selling it will only be taxed at the time the bond is sold using the accrual method on the other hand taxes on the imputed interest earned are applied every year sometimes the series i bond income is tax free at the federal level if it is used to pay for higher education when you sell an i bond and use the proceeds to pay for qualified higher education expenses at an eligible institution in the same calendar year the interest is exempt from federal income tax 7series i bonds vs series ee bonds