I have started buying I bonds. I bonds are inflation indexed bonds that are issued at the face value of the bonds. Interest is compounded semiannually and the bonds earn interest for 30 years. The I bonds interest rate is based on the fixed rate and the inflation rate. The fixed rate stays the same for the life of the bonds. The inflation rate changes twice a year. The interest rate on I bonds changes on May 1 and November 1. The bonds can be cashed in anytime after 12 months. But if you cash them in before 5 years you lose 3 months worth of interest.
I bonds can be bought through TreasuryDirect with as little as $25. They are currently paying 5.64% interest. I figure even if the rate resets to 2 percent in May, that will still amount to a 4 percent annual return on my money which beats any savings account. I expect rising inflation with all of the debt that is being issued by the Federal government. Therefore I bonds are an excellent investment during inflationary terms.
