This myth may have started with a misinterpretation of a statement made by President Obama in his weekly radio address on Sept. 5, 2009 [source: Snopes]. He introduced the option of receiving your tax refund as a U.S. savings bond. But that is what it is -- an option. The choice of whether you want to buy U.S. savings bonds with your refund or not is yours.
But if you're looking for a way to increase your savings, the savings bond tax refund option might be a good place to start. The U.S. Series I Savings Bonds are low-risk bonds that grow in value for up to 30 years. You can use your tax refund to purchase the savings bonds in increments of $50, up to $5,000. You can use your entire refund or just part of it, and have the rest sent to you as a check or direct deposit.
Series I Savings Bonds earn a composite rate of interest consisting of a fixed interest rate and an inflation-based rate that is adjusted twice a year. The interest you earn on the bonds is subject to federal tax when the bonds are redeemed, but it isn't taxable at the state or local level.