IBonds A Low-Risk, Profitable Investment | Part One

U.S. Treasury issues secure bonds

Steer away from risks with IBonds.

IBonds, iBonds or I bonds, whatever you call them, they are becoming more popular nowadays. It’s pretty obvious why: they are practically a no-risk investment.

IBonds are savings bonds issued by the U.S. Treasury and the interest rate is frequently adjusted for inflation. It is adjusted every six months, to be more precise.

Adjusting for inflation

Adjusting the interest rate on IBonds for inflation guarantees that the holder will get a real return on his or her investment. For example, say you keep your money in a savings account that gets 3 percent interest for a year, inflation goes up 3 percent that year. The savings account is technically worth the same amount it was a year ago. You haven’t made any profit.

The interest rate on IBonds is adjusted in such a way that you are always making a profit on your investment.

What’s the catch?

IBonds are meant to be a long-term investment. There is a penalty for pulling out funds before five years. If you cash out your IBonds because you need some debt relief or a quick cash advance, you will lose your last three month’s worth of interest. You can’t cash it out at all during the first year after it’s purchased.

Also, you can’t open one for your baby and then expect them to be able to retire on it at 65. IBonds only collect interest for 30 years.

More on IBonds

Right now, brand-new IBonds are earning a 5.64 percent interest rate plus a rate that is adjusted every six months. As you probably know, that is a lot higher than a traditional savings account at a bank.

Learn about how to purchase IBonds in Part 2.