The latest CPI-U data suggests inflation was around 4 percent in the past year (I say “around” because due to the late 2025 government shutdown, we have no October 2025 baseline data to calculate the rate). The persistently high inflation — even using the core CPI, it is still close to 3 percent — and currently high interest has made some investors consider the safer, more guaranteed returns of good old bonds.
One type of bond you may want to consider: Series I Bonds. These bonds issued by the federal government pay a rate that is set for 6 months, and the rate is based on the most recent 6 months of inflation as measured by the CPI-U (plus a fixed rate, more on that in a moment). These bonds are currently paying 5.51 percent, since the most 6 months of CPI-U inflation was 2 percent, which you essentially double to get an annual rate, and then a fixed rate (currently 1.4 percent) is added to that inflation rate. When you buy the bond, the fixed portion of the rate is fixed for the life of the bond (30 years). That 5.51 percent is currently higher than the 10-year Treasury bond, and even slightly better than the 30-year bond! But the rate is only guaranteed for 6 months, after which it will change.
The biggest reason to buy these now is not the headline rate but the fixed rate of 1.4 percent. That’s the best fixed rate they have offered since 2006-2007! I purchased some of these bonds back in 2022, and I still think it was a good choice: they were paying over 7 percent at the time, which increased to 9.62 percent the following 6 months. Not a bad return in a year when the stock market was unstable and actually fell almost 20 percent that full year. But when I purchased the I-Bonds in 2022, there was no fixed rate attached. That means the 2022 bonds I am still holding are currently just 4 percent, rather than the headline 5.51 percent.
Even if you believe that CPI-U inflation will eventually get back down to 2 percent, and stay there into the future, I-Bonds purchased now will pay almost 3.5 percent for the life of the bond — not a stellar return, but not bad for a guaranteed return. Of course, you could always lock in almost 5 percent for 10 years or over 5 percent for 30 years with ordinary Treasury Bonds. Those aren’t bad ideas other. But if you think inflation will remain elevated, or especially if you think it will ramp up again, putting some of your cash in I-Bonds might make sense.
As a historical point of reference, the best time to buy these bonds would have been in the late 1990s, when they were first issued. At the time they paid a fixed rate of over 3 percent! That means today those bonds are paying 7.5 percent and had been paying as high as 13 percent in 2022 at the peak of CPI-U inflation. Not bad for a guaranteed return! The cumulative return on a $10,000 investment in 1998 would be about 5x, today worth over $50,000. That’s only about half the return of the S&P 500 — but with much less volatility. Those high fixed rates are unlikely to return soon, but the 1.4 percent fixed rate is not too shabby.
Important final thoughts: don’t take this as professional investment advice, just as an idea to research more on your own and with your financial advisor. You can only put $10,000 per year into Series I Bonds, so no need to think about whether you should move all of your money into I Bonds — just think about the margin dollar you are investing. And if you sell these bonds within 5 years, you will lose a small amount of interest (3 months’ worth).
