Inflation can wreak havoc on your investments, but there are a few low-risk options to keep your portfolio afloat. One of those options is investing in Series I savings bonds, also known as I bonds. These bonds are inflation-protected debt securities issued by the U.S. Treasury, which means that their interest rates are linked to inflation.
The interest rate of an I bond is calculated using two separate rates – a fixed rate and an inflation rate. While the former remains the same for the duration of the bond, the latter changes every six months based on the Consumer Price Index for all Urban Consumers (CPI-U). As inflation increases, I bonds pay out more interest, but when inflation falls, they pay out less.
Recently, the U.S. Treasury announced that I bonds will begin paying out 4.3% interest on May 1, down from the previous rate of 6.89%. This adjustment reflects a lowered semi-annual inflation rate of 1.69%, but an increased fixed interest rate of 0.90%.
However, investing in I bonds now means locking in the current 0.90% fixed rate, which is the highest it's been since 2007. Additionally, if inflation rates increase again in the future, those who purchase I bonds now will benefit from the higher interest rate.
It's important to note that TIPS (Treasury Inflation-Protected Securities) are another low-risk investment option that can help protect against inflation. TIPS differ from I bonds in that the principal increases with inflation, rather than the interest rate.
When it comes to investing in inflation-protected securities, it's essential to consider your individual financial goals and risk tolerance. A financial advisor can help you determine which investment options are best for your portfolio. SmartAsset offers a free tool that matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Overall, while the interest rates of I bonds may fluctuate, they remain a viable option for investors looking to protect their portfolio from inflation.
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