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Tax Refunds Paid in I-Bonds?

Posted by Cheryl Costa  October 9, 2009 10:40 AM

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Starting next year, taxpayers can elect to receive their tax refund in the form of Savings Bonds -- more specifically, in I-Bonds. This might be a good means of "forced savings" for those who would otherwise squander their refund, but is it a good idea for everyone else?

Probably not, that is because I Bonds carry interest rates that are tied to the inflation rate. With inflation very low or non existent in the past few quarters, the fixed interest component on these bonds is currently zero. While it is true that the rates are going to be re-set in just a few weeks (on November 1st), inflation has been a non-issue lately so it is probably a good bet that these bonds won't be carrying a high interest rate by the time taxpayers are deciding how to take their refund.

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