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Susan Tompor: I-Bond rates can be an inflation hedge

Susan Tompor, Detroit Free Press on

Published in Home and Consumer News

As the cost of bacon and other goods sizzles, more people want to protect their savings from getting burnt to a crisp by inflation.

One simple move, which I wrote about this past summer as well, involves setting aside some money in inflation-protected savings bonds, known as I Bonds.

You're likely going to hear even more about I Bonds come November when some startling new rates are expected to be announced.

But it's not a bad idea to try to pick up some I Bonds by Oct. 28 to lock in some already solid rates — and set yourself up for an estimated 5.3% rate for a 12-month period. Here's how you'd do it.

How to get a 5% rate

First, you need to realize that I Bonds issued this year from May through October now offer an annualized rate of 3.54%, good for six months, thanks to an uptick in inflation. This is a variable rate that will go up or down over time, and likely change every six months after the issue date of the bond.

 

The I Bonds issued this year from May through October have a fixed rate of 0% and then a variable adjusted rate for the next six months after buying the I Bond.

On Nov. 1, the Treasury will announce the next rate for I Bonds and that's expected to be around an annualized rate of 7.12% for a six month period, according to savings bond guru Dan Pederson.

"So if I buy before Nov. 1 and get an October issue date," he explained, "I will get an annualized rate of 3.54% for the first six months and 7.12% for the second six months."

That's an approximate total return of very attractive 5.33% for the year, experts said. To get to that number, you'd take half of the annualized 3.54% for the six months and half of annualized 7.12% for six months.

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