Why you should pay attention to today’s I-Bond announcement …

I’ve talked about inflation-protected bonds many times before — including both Treasury-Inflation Protected Securities (TIPS) and I-Bonds.

And while I don’t believe the former represent compelling bargains at the moment, as I just told my Income Superstars subscribers — the latter are still a great way to get a very nice return with virtually zero risk … especially if you bought them yesterday!

More on that in a minute though. First, let’s start with a refresher:

I-Bonds are officially known as Series I Savings Bonds. And like their better-known counterparts — Series EE Savings Bonds — these bonds are NOT marketable securities. That means you can’t sell them on the open market, and as a result, their value doesn’t fluctuate.

In other words, unless the U.S. government defaults, you cannot lose any of your principal by owning I-Bonds.

But by holding these bonds you will earn interest — which is comprised of two components: A baseline interest rate and an inflation adjustment.

As you might guess, that baseline rate — which sticks with the bond for its entire 30-year lifespan — is zero right now.

However, the inflation adjustment is determined twice a year in May and November … and is based on changes in the Consumer Price Index (CPI) for the prior six months.

The rate determined in May was 2.3 percent, or 4.6 percent annually. And the new six-month rate will officially be announced today.

What that means:

First, if you had bought your I-Bonds by yesterday, October 31, you would have been enjoying a six month annualized return of 4.6 percent on your money.

Then, your next six months would earn you an additional return of whatever is announced today — almost definitely 3.06 percent (annualized) based on the determining numbers.

Together, that gets you an effective average annual interest rate of 3.83 percent … risk-free!

And it’s worth noting that even if you missed the deadline yesterday, the new six-month rate being announced today — coupled with the next one announced — is probably still going to be far better than anything you can find from a one-year CD right now!

Better yet, you get the same basic government-backing that CDs come with. In fact, the backstop on I-Bonds is even MORE direct because it comes straight from Uncle Sam rather than the FDIC or NCUA.

Plus, in the case of I-Bonds, your interest is exempt from state and local taxation! You can also get the income exempted from federal taxes when the proceeds are used for qualified education expenses.

“Okay, what’s the catch?”

For starters, you must hold I-Bonds for at least 12 months, and if you sell before you’ve held them for five years, you’ll forfeit the most recent three months of interest.

Of course, even if you just held for one year at 3.8 percent — and forfeited three months of the interest … you’d STILL do way better than with a one-year CD!

So the only real catch is that you are limited to buying $5,000 of electronic I-Bonds a year per social security number.

But if you have a couple family members, you can load each one up with some.

Moreover, you can currently buy another $5,000 worth of PAPER I-Bonds per social security number … though they’ll cease to be available in 2012.

Add it all up and that’s $10,000 per person in risk-free investments producing relatively reasonable returns right now.

Sound interesting?

I encourage you to visit www.treasurydirect.gov for more info or to purchase some via their online platform.

Best wishes,

Nilus

P.S. Want to get a lot more income-boosting information like this before I mention it anywhere else … along with all my very best investment ideas? Then I encourage you to take a risk-free trial subscription to Income Superstars for just $39 a year. Simply click here to learn all about what I’m recommending right now and to activate your membership.