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Interest rates have never been lower, and it looks like they're going to stay that way for quite a while. Although that's good news for homebuyers, homeowners able torefinance their mortgages, and other borrowers, savers have seen much of their interest income evaporate due to rock-bottom rates on savings accounts, bank CDs, and other income-producing investments.
Yet one savings option many people don't think about has become attractive again -- savings bonds.
Although you may think of savings bonds as a historical relic from World War II days, there's one type of savings bond pays top-notch rates right now.
The Ups and Downs of I-bonds
Savings bonds come in two basic flavors. Traditional Series EE bonds pay a fixed rate of interest as long as you own them. Unfortunately, they too have succumbed to the low-rate trend, paying just 0.6% right now.
But Series I savings bonds -- also known as I-bonds -- work differently. Their rates are tied to changes in inflation as measured by the Consumer Price Index. In the past, I-bonds used to tack on an additional premium above inflation, but currently, that premium is zero, meaning that your investment will track exactly with the CPI.
That may not sound like much. But at this point, matching inflation gets you a much better deal than you'll find at your local bank. Buy an I-bond now and you'll get 2.2% interest for the next six months. Six months ago, they were returning more than 3%, and this time last year, you could get more than 4.5% on your money.
After the first six months, you'll get a new rate based on inflation over the previous six months. But even if prices fall, you won't lose money.
Getting Signed Up
The Treasury has ramped up its campaign to have people start buying savings bonds through payroll direct deposit. This video explains the new program, which lets you open a TreasuryDirect account and sign up to invest through your HR department at work. You don't even need a separate bank account.
If you're tired of earning next to nothing on your money, savings bonds are worth a second look. For more information, check out the Treasury's new savings bond initiative website.