I've been asked this question thousands of times since the start of the Series I Bond program in 1998 and it's finally making headlines: "If inflation dropped to zero, or there's a recession, what will happen to the interest rate of I Bonds?"

Recession, deflation or economic slowdown; any way you put it, it spells disaster for I Bonds. The I bond was originally introduced to be a hedge against inflation, but what will happen when there's no inflation? Well, savings bond owners are about to find out this Friday, May 1.

During the past four or five months, the country has actually been experiencing deflation at a factor of approximately minus 5.3%, according to the Urban Consumer Price Index (CPI-U) calculated by the government. Since the interest rate for the I Bond is a composite of an inflation rate and a fixed rate, there is widespread anticipation that the new I Bond will be close to 0% for the next six month interest earnings cycle.

Many parents have been using the popular 529 Plan to set money aside to pay for their childrens' college education. However, I know some parents who are not too happy about their money being tied up in a 529 plan now that it has come time for them to pay the actual tuition. With the stock market down almost 50% from its high in October 2007, it's likely your 529 Plan has been taking hits with no end in sight.

On the flip side, owners of U.S. Savings Bonds have experienced only increases in value no matter how much the market has fluctuated over the past months or year. In fact, some Savings Bond owners are holding bonds earning as much as 8.52% annually in tax-deferred investments.

But what about the tax breaks you get from a 529 Plan? That rule should help them out perform the savings bonds even in such a turbulent market, right?... Wrong...

If you own U.S. Savings Bonds, you might stick the certificates aside and not think about them at tax season, but you better pull them out and check if you need to report any income.

One of the biggest advantages about the interest earned by a savings bond is that it is not subject to any state or local tax. A second advantage is that a person can choose to defer reporting the interest earned for federal taxes until the bonds are redeemed. This is the most common way savings bond investors deal with the interest earned and that's fine, until you get to the bond's final maturity (the date that the bond stops earning interest).

Unfortunately, there is a rule that most savings bond investors don't know about: Once a savings bond reaches its final maturity, the interest accumulated over the entire life of the bond MUST be reported on that year's tax return. This rule, stated in IRS Publication 550, applies whether savings bond owners decide to cash-in or hold their bonds after final maturity.

If you didn't know this rule, you're not alone. Most investors are unaware of this rule and are unintentionally violating IRS statutes by not reporting the interest at the proper time. This violation is considered the same as under-reporting earned income on your federal income tax return and could become quite a problem if its not properly reported. It is estimated that there are millions of savings bond owners who are not aware of this rule and could be placing themselves in line for a red flag if the problem is caught by an IRS auditor.

How can you prevent yourself from being audited for not having properly reported your savings bond interest? Follow these steps:

...wait, is that right? US Savings Bonds and making money in the same sentence?

Yes, it is. I walked into my local savings bank yesterday and while filling out my deposit slip, the towering sign of current interest rates for various investments caught my eye. It was quite a depressing sight.

A one-year CD was offered at just above 2%, and the five-year hung around 3%. Like most of you, after opening my monthly statement from my financial planner showing the returns from my 401k or IRA in 2008, I was already looking for a better place to put my savings. The only interest rate that caught my eye, and probably yours the next time you look, was the highest one on the board: the Series I US Savings Bond.

Many people are looking to President-elect Obama to be able to perform some sort of miracle to get America out of its economic and financial crisis. Well, perhaps looking at what past Presidents have done upon taking office is giving the new President some great ideas.

Everyone in the press and on the TV and radio is asking where President-elect Obama will get the huge sums of money needed to finance all of the programs he is discussing. Well, if you look back to the start of World War II, where did President Roosevelt find the billions of dollars to build the munitions, tanks and airplanes to fight two wars on separate sides of the Earth? FDR's answer: US Savings Bonds.

With most people afraid to invest their money in banks or the stock market, there is a huge amount of cash sitting idly on the sidelines. Why not create the positive climate and motivate people to invest in their government? In the early 1940s, the country was still continuing the long slow climb out of depression and everyone was afraid to invest their money into anything at all. A feeling of skepticism about banks and the stock market was still the pervasive feeling all across the land. (Sound familiar?)

Did you know not all savings bonds earn the same rate of interest? AND, did you know that there are more than 50 different interest rates for EE Bonds since they began being issued in 1980?

If you didn't know these two small but very important facts about savings bonds, you're not alone.

The majority of savings bond owners have a difficult time keeping track of the different rules and regulations concerning their rainy day investment. Unfortunately, rainy days are upon us, and with the gloom and doom of the recession hanging over our heads, many savings bond owners are rushing to their banks to cash in at least some of their savings bonds.

With all the confusion in the financial markets these days, the good old, reliable United States Savings Bond comes through once again as the absolute best investment available today. Because of all the bank failures and consolidations, many individuals have reservations about placing their money into any investment. Many investors have commented that they are so concerned about the amount of failures and takeovers they are not even putting their money into bank CDs. But not savings bond owners.

Savings bond owners are recognizing this huge opportunity and are adding to their portfolios while people unfamiliar with savings bonds are learning that this is one of the greatest investments ever offered.

Series "I" U S Savings Bonds issued between November 1, 2008 and April 30, 2009, will earn interest at the rate of 5.64% (an annual rate) for the first six months from their date of purchase. This beats any other investment available today having the same degree of safety and security. Also, money invested into savings bonds earns compound interest and grows tax-deferred until redeemed, or the bond(s) reach their final maturity in 30 years. And now with this historically high interest rate of 5.64%, this is an unprecedented opportunity to add to your investment portfolio with one of the safest investments in the world.

You would think that a country with the lowest savings rate amongst all of the other industrialized nations of the free world would do more to encourage its citizens to save money. After the US Treasury Department's announcement of higher I bond rates on November 3, you start to ask yourself: Should I spend my money, or save it and earn more?

On December 3, 2007 the US Treasury Department announced it would be reducing the limit on the amount of savings bonds an individual can purchase, to $20,000 annually, effective January 1, 2008. This means that one person can purchase up to $5,000 out-of-pocket of paper EE, paper I, electronic EE and electronic I bonds.

The limit prior to the change was a grand total of $120,000, (or $30,000 each type,) six times greater than the new limit.

Pop Quiz: What popular American investment with more than 45 million investors has not lost one cent of its value during the recent turbulent months?

...Give up? It's the United States Savings Bond.

Issued by the US Treasury Department, the US Savings Bond program has been underrated since its inception in 1941. At the time, millions of Americans didn't see it as a way of protecting their money, they saw it as a way to protect their freedom. While the same can't be said of where the funds are going now, we do know that because of the recent fluctuations in the financial markets, US Savings Bonds are the safest investment available to Americans today.

How safe are they? They're backed by the 'full strength, faith and credit' of the United States government. That's nice isn't it, but what does it mean? It's commonly understood that the value of a US Savings Bond is guaranteed by the protection of the US government, and to earn at least the guaranteed rate of return for the life of the bond, usually 30 years. US Savings Bonds are considered low-risk because in order to lose value, the government would have to crumble, and let's face it, we'll have bigger problems than our savings bonds if that occurs. Safe, yes; I'd even say Super Safe!

Want even more of a reason to invest in US Savings Bonds? The Tax-Free for Education rules make them quite a flexible or helpful investment. Looking to help little Johnny get a jump-start on college tuition costs? The Tax-Free for Education rules allow for Savings Bond owners to cash-in their investment, provided they meet the nine tax-free savings bond criteria, and not have to pay the taxes when used to pay for higher education.

Don't miss the rest of our series on Underrated In America!

Inflation protection is the highlight of the day when it comes to U.S. Savings Bonds.

This morning, the Treasury Department announced the new rates for savings bonds issued from November 1st, 2008 through April 30th, 2009. With that announcement came a surprise to the 45 million Americans who own or continue to purchase this old but safe investment. In a time when spending is slowing and the Fed cut rates by 50 basis points only a couple of days ago, the I bond rate has jumped to 5.64% (up 0.8% from the previous six-month period), while the EE bond rate dropped to 1.30% (down a modest 0.1%).