Are you looking for bonds that are safe, have high yields and protect against inflation? If so, you might consider U.S. Treasury Series I Savings Bonds.
The bonds have a combination of a fixed interest rate and an inflation rate that is adjusted every six months, based on the consumer price index.
The currently available bonds have a fixed rate of zero, which doesn’t sound so great. But the inflation interest rate is now 7.12%. So that’s your current yield. And it's none too shabby when regular 30-year Treasuries yield only 2.28%.
The bonds earn interest for 30 years, but you don’t have to hold them that long. You do have to keep them for one year, and if you redeem them before five years, you lose your last three months of interest payments. The bonds accrue interest monthly and interest is compounded semi-annually.
You don’t receive your interest payments until you cash in the bonds, but that means you don’t have to pay tax on the interest until then either. You can pay tax on the interest each year if you want, but that doesn’t seem to make sense unless you think your tax rate will be higher years from now than it is currently.
You buy the bonds directly from the Treasury at the web site TreasuryDirect.gov. You pay for the bond buy linking your Treasury account to your checking or savings account. You can buy up to $10,000 of I Bonds per year.
I Bonds are much simpler than Treasury Inflation Protected Securities (TIPs), another bond product that protects against inflation, but has several moving parts.
As long as inflation stays high, I Bonds should offer an attractive yield, and you can just hold them. If inflation goes away and the yield becomes paltry, you can just redeem the bond.
