Can I bonds help you beat inflation?
Houston - As inflation has been soaring, more people are talking about investing in I bonds, U.S. Treasury bonds that keep up with inflation.
Are they a good investment? Here's a look at the pros and cons.
I bonds are Series I savings bonds issued by the U.S. Treasury. They have a variable rate of return, set every six months based on the rate of inflation.
Now through October 2022, I Bonds are paying 9.62%.
They're guaranteed by the U.S. government, their value doesn't go down, and they offer tax breaks.
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But note that the interest rate changes every six months, depending on the Consumer Price Index.
"We have likely seen the peak of inflation in the April report. So as we see inflation come down, as we see economic growth slow, that rate the I Bond is paying is going to go down with inflation. So as the Fed works to push inflation back to the 2% target, you’re going to wind up with 2% money," explains financial advisor Lance Roberts with RIA Advisors.
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I bonds mature in 30 years. They can be redeemed after one year. But if they are redeemed within the first five years, the penalty is losing the last three months of interest.
Investors can purchase up to $10,000 in I bonds a year, plus $5,000 a year if a federal tax refund is used for the purchase.