This savings bond is doing well due to inflation

0

I Bonds differ from other savings bonds because they pay interest based on two factors: a fixed rate and the rate of inflation.

INDIANAPOLIS – Our portfolio, or our assets, can be thought of as pieces of pie. There’s our home, maybe a second home, and investments, including stocks and bonds. And, advisors tell us to mix investments or diversify. That way, all of our eggs aren’t in one basket when the economy changes.

Due to ongoing inflation, a certain type of savings bond is doing well.

It’s called an I Bond, short for inflation bond, and it’s issued by the federal government.

RELATED: US inflation soared 7.9% in past year, hitting 40-year high

Larry Belcher is the dean of the Indianapolis University business school. He said that unless the government defaults, their bonds are safe.

“If the government defaults, you have much more to worry about than your obligations,” Belcher joked.

I Bonds differ from other savings bonds because they pay interest based on two factors: a fixed rate and the rate of inflation.

“The base rate doesn’t change for the life of the bond, but the floating rate is adjusted every six months,” Belcher said.

While the fixed rate is 0.00% right now, the inflation rate is 7.12% due to the economy. The existing inflation rate expires in April 2022.

RELATED: Fed Begins Fight Against Inflation with Key Rate Hike, More to Come

But even if the inflation rate turns negative in the future, Belcher said your fixed rate is the backup plan.

“It’s one of those types of investments that maybe sleeps better at night, because you’re assured in this case that it will never go below zero. You’re not going to lose your principal”, Belcher said.

You can cash the deposit after 12 months. However, the US Treasury Department notes that if you redeem the bond before it is five years old, you lose the last three months of interest.

I Bonds can be purchased from the Treasury on the Treasury Direct website. There you can review the rate history and decide if this is something you want to do.

Belcher said Treasury Inflation Protection Securities, or TIPS, are another type of inflation-protected bond offered by the US government. However, they are not as accessible as savings bonds.

Share.

About Author

Comments are closed.