Series I savings bonds (Ibonds) are an ideal gift for children and grandchildren as well as investors looking to add inflation protection to their portfolios.

Ibonds are a type of savings bond (like Series EE savings bonds), and have many of the same features.

As with Series EE savings bonds, Ibonds can be owned directly by minors, whereas other assets, such as stocks and real estate, must be held in trust. This makes them a great gift for children and grandchildren. As with savings bonds, I-bond proceeds used to pay for college expenses are exempt from federal tax, assuming the owners (and their expenses) meet certain criteria.

Ibonds pay a fixed rate of interest as well as another layer of interest that varies with the current rate of inflation, as measured by the Consumer Price Index (CPI). Backed by the United States Government, they provide unique protections and a guarantee that they will never lose money. If the economy enters a period of deflation, Ibonds will never go below 0.00% interest per year.

Ibonds are available with face values as low as $25, and purchases are currently restricted to just $10,000 per year. Ibonds are not intended to be traded, but rather held as a long-term investment. They have a 30 year maturity. Although investors can cash them in as soon as 12 months after purchase, if you redeem an I-bond within five years of buying it, you’ll forfeit three months’ worth of interest. As with savings bonds, interest generated by Ibonds doesn’t pay out the interest while you own the bond. The interest accrues and gets paid out when you sell the bond or when the bond matures. The good news is, because Ibonds don’t make regular interest payments, holders don’t pay any taxes until they sell or the bond matures.

Ibonds are taxable at the federal level when sold, but they are not subject to state or local taxes. Because of this, it generally doesn’t make sense to hold them inside an IRA.

Because Ibonds don’t make regular interest payments but instead generate income when you sell, they’re not a good option for those looking to fund living expenses with the current interest from the bonds. But the Ibonds long maturity and inflation protection feature makes them perfect for the younger members of your family.

You can learn more about Ibonds and how to purchase them by going to the TreasuryDirect website.