Re: I series bonds versus CD

mark wrote:
> the I series and EE series bonds are now paying around 2.19 and 2.61 %
> respectively.
> the best for I series in the past has been around like 3.6% or so.
>
> but the bank CD (FDIC insured) are available for around 4%
> (compounded) interest rate when bought for 5 years.
>
> so why not go for the fixed CD instead ?

Remember that locks it up for 5 years, unless you pay the penalty, which 
in effect lowers the interest rate. It wasn't long ago that even 
instantly-accessible money-market funds paid well over 4%. True they're 
paying spit now, but that will change at some point, and nobody knows 
when that will happen. So that's one issue with the 5-yr CD, you're 
locking yourself into 4% for 5 years (or a penalty if you cash it in), 
and the rates might be higher well before then. With the I-bond the 
interest rate will reset every 6 months based on the inflation rate, so 
you aren't necessarily locked into the low initial rate.

Also the CD's interest will be taxed each year, whereas the I-bond's 
interest is tax-deferred until you cash in the bond. That gives a slight 
advantage to the I-bond, how much depends on your tax rate.

And when it's taxed, the I-bond interest is exempt from state taxes, 
while the CD is taxed both state & federal. So you need to factor that 
in when comparing the interest rates.

-Tad