Next I Bond Inflation Component Will Be 4.83%

[sweeps]

The Labor Department released the March CPI numbers today, and with these numbers, the I Bond inflation component can be computed. Thanks to the recent inflation, it's a very high 4.83%. The only time this rate has been higher was in November 2005 which was after the Katrina-induced energy price spike. This 4.83% number is added on to the I Bond fixed rate to derive the I Bond composite rate.

LINK

[Aleta]

The EE Bond is at 3.00% now. So, are you saying that it is better to buy an I Bond nw? I just bought an EE bond for my GrandDaughter in Nov 07 for 3.40%

[sweeps]

The I-Bond is kinda tricky because you have the inflation component which resets every 6 months and the fixed component (currently 1.2%) which stays the same for the life of the bond. You should read Banking Guy's full article because he does a good job explaining all the issues.

According to his analysis, the highest guaranteed rate would be an annualized return of 4.43% if you buy an I-Bond on 4/30/08 and sell it on 7/1/09.

ETA: And that interest is exempt from state and local taxes.

[jIM_Ohio]

Aleta-

I bonds are tricky. There is an interest component (as sweeps mentioned) and an inflation component (as the original post mentioned). Both factor into the return, but you only know the interest component going in.

I have read real returns on I bonds are lower than treasuries, but have not seen any reputable source (like smartmoney) take a position on this one way or other.

TIPs and I bonds also have different rules than regular bonds- taxes, purchase amounts and redemption rules.

There are I bonds- which is what this thread is about, and TIPS (Treausry Inflation Protected Securities). TIPs and I-bonds are different, not sure how.

Part of my retirement plan is to own a bond indexed to inflation for part of cash allocation. Not sure how to do this, because I think a mutual fund holding these securities would not show same behavior as holding the security itself to maturity.

For example, I think there is a rule with either TIPS or I-bonds where they are only sold at 10 year maturities. So maybe the holdings I need to create are a 10 year ladder of TIPs- the question then becomes how do I use this within my asset allocation and then go from there.

I have about 15-25 years to figure that answer out.

[LivingAlmostLarge]

I'm waiting for the fixed component to hit 2%! Then scoop it up.