Series I savings bonds have a variable inflation rate, so their returns can drop after the first six months if inflation falls. Investors also face a one-year lockup and a three-month-interest penalty for withdrawals before five years. Each person can invest only up to $10,000 electronically per year. In addition, I bond interest is subject to federal income tax, and I bonds cannot be held in individual retirement accounts (IRAs), 401(k) plans, or 529 college savings plans.
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