A Safer Way to Trade Inflation with High Yield

Jan 4, 2023

Inflation has been rough on us all.  In fact, it’s still at 40-year highs. And, unfortunately, analysts say inflation is here to stay for a few more months. If you have money just sitting in your savings account, inflation is slowly eroding its value. That’s terrible news.  

However, there is a way to earn 6.9% interest from it with iBonds.

iBonds are a type of U.S. savings bond that were designed to protect your cash from inflation.  With consumer prices showing no signs of cooling – at least not any time soon, investors are turning to higher-returning, lower-risk investments, such as iBonds.  Not only is the interest on an iBond nearing 10%, they’re exempt from state and local income taxes, which makes them an even better low-risk investment for investors who live in high-tax states and cities.  

Why Invest in iBonds Now?

With inflation showing no signs of cooling, iBonds are a safer bet with great yield.

As noted by The Wall Street Journal, “I Bonds are guaranteed by the federal government. The bonds pay a fixed rate that is set by the Treasury, plus an inflation-adjusted rate that is determined by the change in CPI over the past six months. Thanks to the upward trajectory of CPI, I Bonds have become a top yielding U.S. asset, even though they carry virtually no risk of principal loss.”

In addition, most savings accounts earn close to nothing, which is outpaced by the current sky-high inflation rate.  As inflation heats up, your dollar loses value. They’re also attractive because the risk of default is next to nothing, and are very low risk. 

There are some strings attached, though.

The bonds are only available through the U.S. Treasury Department site, and cannot be redeemed for at least one year.  Also, bonds redeemed at less than five years can be penalized as much as the last three months of interest.  In addition, there is a $10,000 per person limit one can invest in per year.

So, how does an iBond work?

Once you invest in an iBond, you receive a combination of two interest rates, which includes the fixed rate, and the variable rate. The fixed rate of return is set at purchase date and remains the same throughout the lifetime of the bond.  The variable rate gets adjusted every six months, by the Bureau of Labor Statistics to reflect changes in the consumer price index.  Interest is also compounded semi-annually, and then added to the principal.  

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