Savings bonds and I Bonds: Great investments against inflation

Inflation is a persistent issue that can sap away your purchasing power. As costs rise and prices decrease, your money loses value over time, and you are left with less purchasing power than before. Fortunately, there are ways to guard yourself against inflationary effects, one of which is investing in savings bonds.

Savings bonds are a type of government-backed investment that offers investors the ability to earn interest while protecting their money against inflation. The U.S. Treasury offers several varieties of savings bonds, such as Series EE, Series I, and Series HH bonds, each with its own features but all offering protection from inflation.

Savings bonds offer one way to protect against inflation: fixed interest rates. By purchasing a savings bond, you lock in an established rate that remains constant throughout its term; even if inflation rises, your bond will still earn the same rate, providing steady income from investment income.

Take, for example, a Series I savings bond with an interest rate of 2%. If inflation rises to 3%, your bond’s value will increase by 3%, but its interest rate remains at 2%. This ensures your money doesn’t lose value due to inflation alone.

Savings bonds offer another layer of protection against inflation through their inflation-adjusted interest rates. Series I Bonds, in particular, are designed with this purpose in mind and feature two components: a fixed rate and an inflation rate based on the Consumer Price Index (CPI), which measures average changes in prices over time. Consequently, as inflation rises, your bond’s interest rate will also increase – providing added protection against inflation.

As an example, let’s say you purchase a Series I savings bond with an interest rate of 0.5% and inflation at 2%. If inflation rises to 3%, your bond’s interest rate will increase to 2.5%, providing you with higher returns and safeguarding your money against inflation.

Savings bonds offer several advantages that make them an appealing investment option. First, they are secure, low-risk investments backed by the full faith and credit of the U.S. government – guaranteeing you your face value when the bond matures, regardless of market conditions. Furthermore, purchasing savings bonds is simple; you can purchase them online through TreasuryDirect’s website.

You can save money by using I Bonds and their high-interest rates

You must take some risk if you want to get hefty returns on your investments. As inflation continues to rise in the 2020s, Series I Bonds are a great savings vehicle that offers high returns and low risk. While “I Bonds” will not solve your inflation problems, they can help to protect your portfolio against the pain of rising prices.

Stocks with high dividend yields are traditional high-return investments. So are “junk” bonds. A junk bond’s yield is high because there’s a good chance that the issuer will cancel future payments or default, leaving you in debt. You’re basically being paid more to take on more risk.

Series I savings bonds, also known as TreasuryDirect I Bonds or inflation-protected bonds, stand out among the rest of the mix. They offer very attractive yields and have the support of the federal government. You can be sure that every penny of your Series I Bond investment will be returned to you because the U.S. has not defaulted on its debt. You’ll also be earning a handsome interest rate, at least for the time being.

Eye-popping interest, but not forever

What type of interest? The initial I bond rate rose from 9.22% to 9.62% in 2022, when inflation reached 40-year highs. This is not a typo. Even though it looks like the kind you would get from a desperate company that offers a large dividend to raise cash, it’s not. Why was the yield so high?

  • Inflation is regularly adjusted for I Bonds.
  • This rate is calculated twice per year, based on changes to the non-seasonally adjusted Consumer Price Index (CPI-U), for all items.
  • The I bond rate rises when inflation is high, as it was in 2022. This makes it an even more powerful investment tool.

The interest rate of 9.62% may seem impressive, but it was only applicable for the first six months, after which the I bond yield was reset in November, resulting in a still-high 6.89% rate for I Bonds purchased until April 2023. However, this rate is only guaranteed for six months, and the yield will continue to fluctuate as long as you own the bond.

If you’re considering investing your entire portfolio in I Bonds to take advantage of the low-risk, high-return yield, keep in mind that the maximum purchase amount is $10,000 per individual per year. It’s also advisable to incorporate asset allocation into your planning to ensure a balanced portfolio.

Savings bonds, including I Bonds, were not very popular for many years due to their low interest rates, which were not competitive with other high-yielding options such as information technology stocks. However, the COVID-19 pandemic caused inflation to rise globally, leading to a surge in the CPI to 9.1% year-over-year by June 2022, the highest level since late 1981. This led to a drop in stock prices and an increase in demand for I Bonds with their robust inflation-adjusted yields.

How to purchase a Series I bond

Only the U.S. government can sell Series I savings bonds. This is how it works:

  • You can open an electronic account with the Treasury Department. As with any financial account, you will need to give some personal information.
  • You can give the Treasury Department access by giving the bank routing number (found in the lower left corner of personal checks) as well as your account number at the bank (see the center of your check).
  • The Treasury Department will need to know how much you are willing to invest. For example, a person can only invest $25 and a maximum of $10,000 per year. An I bond can be purchased by your spouse or partner, but they will need to open their own account.
  • Electronically, the Treasury Department transfers the money from your bank into the Treasury Department account that you have set up.
  • You can collect interest at the stated rate, but it won’t last. This rate is only valid for the first six months of your bond’s ownership. After that, the government adjusts it every May 1 and November 1.
  • After six months, interest earned is added to the principal’s value. Interest after that is earned at the new principal rate but at whatever rate government chooses.
  • The bond can be kept for as long as 30 years.

Interest on I Bonds is a mixture of a fixed rate as well as an inflation rate. As long as the bond is owned, the fixed rate, which was at zero in September 2022, will not change. However, the inflation rate (6.89% in November 2022) changes approximately every six months.

Inflation drops significantly in six months after the purchase of your I bond. You’ll still have the bond and the lower rate for at most six more months. This is because the bond can’t be redeemed before you own the bond for one year. You’ll lose the last three months of interest if you withdraw your I bond before it has been owned for at least five consecutive years.

Another important point is that I Bonds can only be purchased through a taxable account. This means a bank account or another cash account. There are no Individual Retirement Accounts (IRAs) or 401(k) that you cannot use. You can invest in I Bonds as part of your long-term saving plan, but you cannot do so through a tax-advantaged account. Therefore, you will owe taxes every year on interest earned from I Bonds.


In conclusion, inflation is a major concern that can erode your purchasing power over time. One of the ways to protect your money against inflation is by investing in savings bonds. Savings bonds offer a secure and low-risk investment option backed by the US government, with fixed and inflation-adjusted interest rates to protect against inflation. Series I savings bonds are a great option as they offer high returns and low risk, with the additional benefit of being backed by the federal government. However, it’s essential to keep in mind that the interest rates of savings bonds fluctuate over time, and there are limits on how much you can invest. Incorporating asset allocation into your planning is recommended to ensure a balanced portfolio. Ultimately, while savings bonds alone may not solve your inflation problems, they can help protect your portfolio against the impact of rising prices.


Q: How do bonds protect against inflation?

A: Bonds can protect against inflation because they can offer a fixed interest rate that stays the same even if inflation rises. Additionally, some bonds, such as Treasury Inflation-Protected Securities (TIPS), offer an interest rate that is adjusted for inflation.

Q: What are Treasury Inflation-Protected Securities (TIPS)?

A: TIPS are a type of government bond that is designed to protect against inflation. They offer a fixed interest rate, like traditional bonds, but also have an additional inflation adjustment that is added to the interest rate.

Q: Are bonds a safe investment?

A: Bonds are generally considered to be a safe investment because they are backed by the issuer’s ability to pay back the debt. However, like any investment, there is some risk involved, and the value of bonds can fluctuate based on changes in interest rates and market conditions.

Q: Can I sell my bonds before they mature?

A: Yes, bonds can be sold before they mature, but the price you receive may be higher or lower than the face value of the bond, depending on market conditions.



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