What type of savings bond is adjusted for inflation with a fixed interest rate?

What type of savings bond is adjusted for inflation with a fixed interest rate?

• A. Series I US savings bonds
• B. Series EE Bonds
• C. Fixed Rate Bonds
• D. Inflation-Protected Securities

Answer: (A)

Series I US savings bonds are specifically designed to protect against inflation while offering a fixed interest rate component. These bonds have a unique structure where they combine a fixed interest rate with an inflation rate that is adjusted semiannually based on changes in the Consumer Price Index for All Urban Consumers (CPI-U). This means that the interest earned on Series I bonds can increase over time as inflation rises, ensuring that the purchasing power of the investment is maintained. In contrast, Series EE Bonds offer a fixed interest rate that does not adjust for inflation, which means their value may not keep pace with inflation over time. Fixed Rate Bonds generally refer to bonds that have a set interest rate for their lifespan, without any adjustment for inflation. Inflation-Protected Securities are designed to provide protection against inflation, but they are different from Series I bonds in that they are typically issued by the government and work through adjustments to the principal rather than incorporating a specific fixed interest rate component. Therefore, Series I US savings bonds are the correct choice as they uniquely combine these features of a fixed interest rate with inflation protection.

Series I US savings bonds are specifically designed to protect against inflation while offering a fixed interest rate component. These bonds have a unique structure where they combine a fixed interest rate with an inflation rate that is adjusted semiannually based on changes in the Consumer Price Index for All Urban Consumers (CPI-U). This means that the interest earned on Series I bonds can increase over time as inflation rises, ensuring that the purchasing power of the investment is maintained.

In contrast, Series EE Bonds offer a fixed interest rate that does not adjust for inflation, which means their value may not keep pace with inflation over time. Fixed Rate Bonds generally refer to bonds that have a set interest rate for their lifespan, without any adjustment for inflation. Inflation-Protected Securities are designed to provide protection against inflation, but they are different from Series I bonds in that they are typically issued by the government and work through adjustments to the principal rather than incorporating a specific fixed interest rate component.

Therefore, Series I US savings bonds are the correct choice as they uniquely combine these features of a fixed interest rate with inflation protection.