How to Get High, Risk-Free Returns Despite Inflation

It's a terrible time to be a saver...

Inflation is moving higher... And interest rates are still close to zero.

In November, the Consumer Price Index ("CPI") – which measures the average change in prices that consumers pay for a basket of goods and services – increased by 6.8% when compared with November 2020.

That's the largest 12-month increase since the period ending in June 1982. And it means your hard-earned savings are going down in value.

So today, I want to discuss what's happening with inflation... And I want to share with you a way to earn 7.12% in a risk-free government debt instrument.

Yes – I said 7.12%, risk-free.

Here's the deal... Inflation is here.

As the chart below shows, inflation started to shoot up in April. And for the past seven months, the CPI has increased by 5.6% on average...

The reasons stem from the pandemic... ultra-loose monetary conditions, stimulus checks in the hands of homebound consumers, and supply and labor shortages.

In other words, extra money is chasing fewer goods and services. The combination has put upward pressure on prices.

After months of saying otherwise, Federal Reserve Chair Jerome Powell finally admitted that inflation is no longer "transitory." The Fed is starting to pull back on its ultra-easy monetary policy. And it plans to start raising interest rates directly – as early as the first half of this year.

But the Fed isn't raising rates for months yet. And in the meantime, the Fed's low-interest-rate policies combined with high rates of inflation make it a terrible time to be a saver...

In real terms, savers are losing money when they lend it to the government or keep it in the bank.

For instance, a 10-year Treasury is yielding around 1.7% annually. And the average rate of inflation over the first 11 months of 2021 is running around 4.5% annually... At this point, savers are losing close to 3% annually in real terms (4.5% inflation minus the 1.7% 10-year "risk free" rate equals 2.8%).

And folks keeping their money in the bank aren't getting anywhere close to a 1.5% rate. The average interest rate for bank accounts was just 0.06% in the week ending November 24, according to consumer financial company Bankrate.

At this point, savers have awful options...

They can either keep their money safely in the bank or in cash and gradually lose purchasing power... or they can gamble their savings in their favorite asset class – stocks, real estate, or cryptocurrencies.

For the most part, investing in risky assets has been working out great since market lows in March 2020. But when sentiment inevitably turns... losses can get big. It's not an easy choice.

So today, I share a way to use inflation to your advantage... and to earn up to 7.12% annually with no repayment risk...

I'm talking about inflation-adjusted Series I savings bonds issued by the U.S. Treasury. Because of the spike in inflation, Series I bonds are now yielding 7.12%...

This rate will apply from November of this year through April 2022. Then it will be adjusted again (every May and November) for another six-month period based on the rate of inflation at that time as measured by the CPI.

To take advantage of Series I bonds, you will have to go to TreasuryDirect's website and set up an account... Under the tab "BuyDirect," you will see an option to purchase Series I savings bonds. From there, it's easy enough to complete the purchase.

Please note... the website is a bit clunky – so it's best to set up an account when you're in a good mood and have time. But after using it a few times, you'll get accustomed to how it works.

Besides Series I bonds, TreasuryDirect provides access to other government offerings – like bills (maturing in one year or less), notes (maturing in two to 10 years), bonds (maturing in 10 years or more)... among other options.

As an investor or a saver, it's worth becoming familiar with the site to have additional options to manage your cash.

The Series I savings bonds with the 7.12% rate we're discussing are an accrual-type security – meaning interest is added to the principal, and subsequent interest is paid on the accrued, or growing, principal... It will earn interest for up to 30 years if you don't cash out sooner.

There are some nice tax features to these bonds as well. You have the option of waiting until you cash them in to pay federal taxes on the interest. It's also possible to reduce federal income taxes further if the interest is used for higher educational purposes. And finally... there are no state or local taxes.

Series I bonds do have some drawbacks...

There is a $10,000 per-person, per-year limit on purchases of Series I bonds through TreasuryDirect. However, if you make a purchase using a tax refund, you can buy an additional $5,000 worth of bonds per year, per person... And if you're married, you and your spouse can each buy up to $10,000. Additionally, you can buy up to $10,000 worth for each child.

An important note... you should buy I bonds with money you don't need access to in a hurry. You can't sell them for a year. And if you sell them before five years, you will lose the last three months in interest as a penalty.

Still, if you can park your cash for at least a year, I bonds are a good option. By comparison, the average interest rate for a certificate of deposit with a one-year duration is 0.14%, according to Bankrate.

It's a great way to grow your savings risk-free... instead of losing purchasing power as your money languishes in the bank.

Good investing,

Bill McGilton

Editor's note: If you're interested in fixed-income investments, there's an even better alternative... In Stansberry's Credit Opportunities, Bill and editor Mike DiBiase go where the real action is – and where billionaires like Warren Buffett, Paul Singer, and more look for opportunity in times of distress – corporate bonds.

Thanks in part to their incredible strategy, one subscriber was able to retire at age 52. To hear the story from him – and to learn how you can claim instant access to Stansberry's Credit Opportunities at the best offer we've ever made – click here.

Further Reading

"When the bond market swings from euphoria to fear, you have to act just as fast," Mike DiBiase writes. You might think you've missed the opportunity to make money in the bond market. But we're due for a big opportunity in the near future... Get the full story here.

"Unfortunately, close-to-nothing returns are what you should expect out of most fixed-income investments today," Dr. David Eifrig writes. And when it comes to protecting or growing your nest egg, earning a decent return is all that matters... Read more here: Conventional Wisdom Won't Save Your Retirement.

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Market Notes


Today's company is leading the charge against the pandemic...

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As you can see, CVS shares are in an uptrend. They're up more than 50% over the past year, including dividends. And as folks continue to turn to this giant for all their health care needs, that trend should continue...