Savings Bonds as Inflation Protection

U.S. Savings Bonds, used by two generations of investors as a secure haven from stock market and other financial downturns, now offer protection against another risk - inflation. The U.S. Treasury began issuing inflation-indexed bonds - I Bonds - in September that can be purchased for as little as $50.

Earnings on the new bonds are based on a combination of two rates - a fixed rate and a variable inflation rate that is adjusted each May and November to reflect changes in the government’s Consumer Price Index. I Bonds offer a total return of 4.66 percent based on the May adjustment.

In the event of less than zero CPI, the bonds will not decline in value. Treasury officials point out that I bonds not only protect investors against inflation but also carry safeguards against deflation.

Source: Author unknown (1998, November).  AARP Newsletter, 21.

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