I bond

Example

“During 9% inflation in 2022, I bonds paid 9.62% interest — the highest rate in decades — with zero default risk.”

Memory Tip

I BOND = Inflation Bond. The rate adjusts with CPI every 6 months. Safe inflation protection.

Why It Matters

I bonds help protect your savings from inflation, which is critical because inflation erodes the purchasing power of money over time. By combining a fixed rate with inflation adjustments, I bonds ensure that your money grows faster during periods of high inflation, making them valuable for long-term savers who want to preserve wealth.

Common Misconception

Many people believe they can withdraw money from I bonds whenever they want without penalties, but actually you must hold them for at least one year and will lose the last three months of interest if you cash them in before five years. This makes I bonds less liquid than regular savings accounts, despite their safety and inflation protection.

In Practice

Suppose you purchase a 10,000 dollar I bond when the fixed rate is 1.5 percent and the inflation rate is 4 percent. Your bond would earn approximately 5.5 percent total interest for that six-month period. After six months, if inflation drops to 2 percent, your new rate would adjust to approximately 3.5 percent, combining the fixed 1.5 percent with the new inflation component.

Etymology

I BOND = an Inflation savings bond. The 'I' stands for INFLATION.

Common Misspellings

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