Worried about rising inflation? Almost risk-free I bonds could soon yield 9.62%

Less risk often means lower returns. But that’s not the case with I bonds, an inflation-protected, government-backed asset that could soon yield around 9.62%.

I bonds are currently offering annual yields of 7.12% through April, and the rate could reach 9.62% in May based on the latest Consumer Price Index data. Annual inflation rose 8.5% in March, according to the US Department of Labor.

“The 9.62% is a stunning number,” said certified financial planner Christopher Flis, founder of Resilient Asset Management in Memphis, Tennessee. “Especially given how other fixed income assets have performed this year.”

Of course, the 9.62% yield is an estimate until the US Treasury Department announces new rates on May 2. Still, I bonds may be worth looking into if you’re looking for ways to fight inflation. Here’s what you need to know before you buy.

The I bonds, guaranteed by the US government, will not lose value and will pay interest based on two parts, a fixed rate and a floating rate, changing every six months according to the consumer price index.

If you buy I bonds by the end of April, you’ll lock in 7.12% for the next six months, followed by around 9.62% for another six months, for a 12-month average of 8.37%, according to Ken Tumin, founder and publisher of DepositAccounts.com, which tracks these assets.

However, there are only two ways to purchase these assets: online via TreasuryDirect, limited to $10,000 per calendar year for individuals, or by using your federal tax refund to purchase an additional $5,000 in paper bonds. I. There are redemption details for each here.

You can also purchase more I Bonds through corporations, trusts, or estates. For example, a married couple with separate businesses can purchase $10,000 each per business, plus $10,000 each as individuals, for a total of $40,000.

One of the drawbacks of I bonds is that you can’t redeem them for at least a year, said George Gagliardi, CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts. And if you cash them in within five years, you’ll lose the previous three months of interest.

“I think it’s decent, but like everything else, nothing is free,” he said.

Another possible downside is lower future returns. The variable portion of I bond rates may adjust downward every six months, and you may prefer higher-paying assets elsewhere, Gagliardi said. But there’s only a one-year commitment with a three-month interest penalty if you decide to cash out early.

Still, I bonds may be worth considering for assets beyond your emergency fund, said Flis of Resilient Asset Management.

“I think the I deposit is a wonderful place for people to put the money they don’t need right now,” he said, as an alternative to a one-year certificate of deposit. .

“But I bonds are no substitute for long-term funds,” Flis said.