The earnings rate for I Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. The 2.57 percent earnings rate for I Bonds bought from May through October 2002 will apply for the first six months after their issue. The earnings rate combines the 2.00 percent fixed rate of return with the 0.56 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 178.3 to 178.8 from September 2001 to March 2002, a six-month increase of 0.28 percent.

Treasury�s inflation-indexed I Bonds are designed to offer all Americans a way to save that protects the purchasing power of their investment by assuring them a real rate of return over and above inflation. I Bonds have features that make them attractive to many investors. They are sold at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000 and earn interest for as long as 30 years. I Bond earnings are added every month and interest is compounded semiannually. They are State and local income tax exempt, and Federal income tax on I Bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I Bonds before five years are subject to a 3-month earnings penalty.

Series I, inflation-indexed savings bonds purchased from May through October 2002 will earn a 2.00 percent fixed rate of return over and above inflation. The 2.00 percent fixed rate applies for the 30-year life of I Bonds purchased during this six-month period.