By Jeff Brown
There’s enough risk in today’s financial markets. So what if you could invest in a government-guaranteed holding that would always grow faster than inflation?

You can, with an Inflation-indexed U.S. Savings Bond. But the after-inflation return is now so tiny it makes sense to look for alternatives like certificates of deposit.

On May 1, the government set a new interest rate for I bonds sold through October: 0.00 percent. That’s not a typo. They’ll pay nothing. Zero.

What about the promise to stay ahead of inflation? It’s still good. For the six months ended May 1, inflation was negative, at -2.78 percent. By earning 0 percent you’d still beat inflation, assuming it does not perk up before Nov. 1.

When they were introduced in the late 1990s, I bonds looked like a nifty modernization to the old-fashioned U.S. Savings Bond that millions of Americans had bought at work and given to their children and grandchildren.

Unlike the older bonds that carried a fixed interest rate, I bonds combine two rates. First is the inflation-based rate adjusted every May 1 and Nov. 1 to match the previous six months change in the consumer price index. Once a bond is purchased, this variable portion of its yield changes every six months.

Second is a fixed rate, also established every May 1 and Nov. 1. The difference is that once you buy a bond its fixed rate is permanent.

On May 1 the government set the fixed rate for bonds sold during the next six months at 0.1 percent, while the variable rate is -2.78 percent. Since the bonds are guaranteed against loss, the combined rate will be 0 percent for the first six months after a bond is bought.

After that, there will be a new variable rate, while the fixed rate will stay 0.1 percent. In other words, the bond will always yield 0.1 percent above the inflation rate.

Today, a six-month CD looks like a better deal. They yield 10 times as much, 1.06 percent, according to the BankingMyWay.com survey.

I bonds have other limitations that would weaken their appeal even if rates were to perk up. Annual I bond investments are limited to $5,000, down from $30,000 before Jan. 1, 2008. They don’t produce steady income, since interest earnings aren’t received until the bond is redeemed or matures. You can’t redeem an I bond in the first 12 months, and you lose three months interest earnings if you redeem within five years.

It’s a big come-down for I bonds, which once were more generous, with the fixed rate peaking at 3.6 percent in 2000.

Investors seeking inflation protection can buy another type of government bond, Treasury Inflation-Protected Securities, or mutual funds that hold them. There even are a handful of corporate bonds with inflation protection. And, of course, stocks tend to beat inflation if you hold them for the long term.

But stocks, TIPS and corporate inflation bonds all carry risk of loss, so they’re not suitable for investors who want the kind of rock-solid safety offered by savings bonds.

For now, those investors are probably better off with CDs, which are paying inflation-beating rates and carry government assurances against loss. If beating inflation is your chief worry, consider CDs that mature in two years or less. That way you can get at your money to reinvest at higher yields, which often follow rising inflation.

Use the Certificate of Deposit Calculator to see what you can earn, and find good deals with the BankingMyWay.com shopping tool. Citibank (Stock Quote: C) offers 2.25 percent on a 12-month CD, for example.

Also consider a laddering strategy, which means buying CDs of various maturities to maximize yield while retaining quick access to a portion of your holdings. The CD Ladder Calculator shows how this works.

Finally, consider CDs with no early withdrawal penalties, so you can reinvest whenever yields improve. Bank of America (Stock Quote: BAC) for example, offers a nine-month “Risk Free CD) yielding 1.39 percent.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

— For more ways to save, spend, invest and borrow, visit MainStreet.com.