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An Investment Option You’ve Probably Never Heard of

The I’s have it when it comes to trends – iPods, iPhones, iTunes – but there’s another I in town that isn’t owned by Apple and has many investors taking a second look these days: Inflation bonds.

While other kinds of bonds have seen yields fall as investors flock to safety, I-Bonds, as they’re known, are still yielding returns of up to 6% as they are directly tied to the inflation rate, which has been on the rise over the past few months.

With I-Bonds, you essentially get two yields and two ways to make money: a fixed yield and a yield based on inflation. The fixed rate lasts the entire life of the bond, typically 30 years. The inflation rate resets twice per year: on May 1 and November 1. If you bought an I-Bond right now, you could lock in close to a 5% rate and in the short run inflation will likely stay above 3.5%. But a word of caution: If inflation falls a few years down the line, the yield will drop dramatically.

I-Bonds aren’t for the fickle, either. Under the terms of these bonds, you cannot touch your money within the first year. You can dip in after five years, but you will be hit with a penalty. Also, the minimums are very high, so I-Bonds don’t make sense for everyone since CDs are currently offering similar rates.

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