If you purchase these bonds with your tax refund, the amount you request must be evenly divisible by 50 because the minimum denomination of a paper Series I bond is $50. If you don't buy Series I savings bonds with 100 percent of your refund, you can elect to have the amount not used to purchase the bonds deposited into a bank account or mailed to you as a check. In filing your tax return, use Form 8888, Allocation of Refund (Including Bond Purchases), to spell out the details.
You can't really time the purchase of Series I savings bonds using your tax refund unless you file for a six-month extension on your tax return. The interest rate on the Series I bond changes on or about May 1 and Nov. 1 each year. A six-month extension on your income tax return only takes you to Oct. 15, 2012, so you only have two choices, not three, for these purchases. You can take today's rate, or wait for the May 1 announcement by filing for an extension. It's possible that the time it takes to process your refund will influence the date. The issue date will be the first day of the month in which the Internal Revenue Service submits payment for the bonds to the Treasury Retail Securities site in Minneapolis. For example, if the site in Minneapolis receives your order from the IRS on April 20, the issue date of your savings bonds will be April 1.
Even though the Series I bonds currently pay no fixed rate of return, I still like them better than the Treasury Inflation-Protected Securities, or TIPS, in today's interest rate environment. For example, five-year TIPS are currently yielding inflation less 1.44 percent. That puts the Series I yield 1.44 percent higher than the five-year TIPS.
I don't expect a change in the fixed-rate component when the Treasury announces its new savings bond rates in May. In trying to time the purchase, you're just dealing with the difference in the inflation component for the time period between a current purchase and the change in the inflation component in May, if any. Even if the fixed rate were to change, it would be a huge move if the fixed component went up to a tenth of a percentage point in yield. That increase on $5,000 is $5 per year. To me, it's not worth the angst in trying to time the purchase. File now. Buy now.