I-Bonds are U.S. Savings Bonds that are designed to offer inflation protection. They pay both a fixed interest rate and a variable interest rate.
The fixed rate is set when you buy the bond. The variable rate changes twice a year, based on inflation, as measured by the Consumer Price Index (CPI).
Unfortunately, I-Bond yields may be meager. From May through October 2002, I-Bonds pay a 2 percent fixed rate plus a variable rate annualized at 0.57 percent, for a total of 2.57 percent.
Thus, you might be better off with traditional EE Savings Bonds. EEs pay a much higher yield: currently 3.96 percent. They also offer considerable inflation protection
Even though EE Savings Bonds are not officially “inflation-proof” bonds, that is effectively the case. EE bonds have variable yields, set at 90 percent of the average yields on five-year Treasuries. Therefore, if inflation increases and interest rates rise, EE bonds will offer higher yields.
