In a normally quiet corner of the bond market, individual investors can purchase government bonds directly from the Treasury via the TreasuryDirect website. Quiet, at least until this year.
The spike in inflation as led to a spike in activity in Series I Bonds. I Bonds are inflation-adjusted U.S. savings bonds. Americans snatched up nearly $11 billion in these bonds over the past six months, compared with around $1.2 billion during the same period in 2020 and 2021, according to Treasury Department records.
The I Bond interest rate is based on a calculation tied to the consumer-price index and we all know what prices have been doing. Therefore the rate on I Bonds is currently 7.12 percent and will rise to about 9.6 percent beginning in May. In a world where the benchmark Barclays Aggregate Bond Index is yielding right around 2 percent that's a no brainer.
Now before you sell everything to pile into these bonds, there are a few caveats to be aware of. First of all, you can only invest $10,000 per year per social security number so there is that limitation. Secondly, you are restricted from selling them within a year, and you do sacrifice three months of interest if you sell within five years. So not for short term money. And finally, the rate resets twice a year, so if inflation turns out to be transitory like many still predict, the interest rate will come back down with it.