Earning interest on safe investments is hard to come by these days. And with inflation here, the risk of losing purchasing power on savings accounts is a concern.

When interest rates are low I must throw up the caution flags about the dangers of reaching for yield, that is, purchasing riskier and riskier securities that pay higher returns. 

Investors demand higher returns to compensate for this risk. It’s tempting to focus on the high return number without factoring in the risk. They don’t call junk bonds “junk” for nothing.

Nevertheless, the lesser known Federal Savings I-Bonds are a piece of the solution you’re looking for these days.

I-Bonds are offered directly from the US Treasury and are fully backed by the US Government (read: most secure investment you can purchase). Interest is earned based on both a fixed rate and a rate that is set twice a year based on inflation. The bond earns interest until it reaches 30 years or you cash it, whichever comes first.

Currently, I-Bonds are paying 7.12% interest. The rate is set for the first 6 months of ownership, and the current rate is good through April 2022. 

Even though these are 30 year bonds, you can sell the bonds after you’ve held them for a year. The penalty for selling them between 1-5 years after purchase requires you to forfeit the last three months of interest (a small price to pay in my opinion). There is no penalty for selling them after 5 years. 

Individuals are limited to purchasing $10,000 of I-Bonds per year (a couple could purchase $20,000 in total together each year) directly from the Treasury Direct website. You can also use up $5,000 of your tax refund to purchase paper I-Bonds. 

With the $10,000 limit (or up to $15,000 if purchased via tax refund), it might not be the complete solution for our interest woes on savings, but better than a poke in the eye!