One of best fixed-income deals around, I bonds give you the government-guaranteed safety of regular savings bonds plus inflation-matching returns. These supersafe bonds have two payouts: a fixed rate (currently zero), and a premium over the inflation rate that adjusts twice a year, in November and May, based on changes in the consumer price index.
Starting this November the I bond interest rate will probably be about 3%, says Mel Lindauer, co-author of the "The Bogle-heads' Guide to Investing." Even if the May rate drops you will probably earn at least 2% over the next year, which handily beats the current average one-year CD rate of 0.75%. And you don't have to pay state or local taxes on I bond interest.
Keep in mind that money held in I bonds is not entirely liquid; you can't redeem your bonds for at least one year, and if you cash them out before five years, you lose three months' interest.
The one hitch: Beginning in January, the Treasury will no longer sell paper bonds, so you'll have to buy them online, up to a maximum of $5,000 annually, at treasurydirect.gov.
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