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Posted: 6:00 a.m. Thursday, Nov. 15, 2012

Series I bonds are a good deal -- for now



By Clark Howard


Are you unhappy with the low interest rates on savings and CDs? There's an option from the federal government that could temporarily earn you close to 2 percent on your money.

In the past, I've spoken with great enthusiasm about Series I U.S. savings bonds. Throughout the late 1990s and early last decade, they were a phenomenal deal. My wife bought Series I bonds at their peak interest rates and she's earning 8.2% on her savings bonds today. If you bought during the same sweet spot, I advise you to hold those notes for the full 30-year term.

But over the last several years, I hadn't really been talking about Series I bonds because they weren't as good of a deal. Recently though, I read a post on my Clark Stinks messageboard and somebody pointed out that their time has again come.

Series I bonds have a two-part interest rate: There's a fixed rate that today sits at zero. Then there's a floating rate based on inflation. For next six months, that floating rate is 1.76%.

So at this point, it does make sense to take money you would otherwise put in savings or CDs and buy Series I savings bonds at SavingsBonds.gov.

Just know that the rate resets every six months. So what I recommend today could change six months down the road. If you like the sound of this deal, jump on it now!

With Series I bonds, you face a 90-day interest penalty if you cash them in before five years, much like with a CD. (You must hold an I bond for a minimum of 12 months.) Paying that penalty could be worth it if CD and savings rates take a big jump shortly down the road. Nobody knows what the future holds. You will need to see what the reset rate on your Series I bonds is in six months and then decide if you want to bail or stay put.

I'll be here to give you more guidance as the future unfolds. For more on rates and other questions about I bonds, please visit I-Bonds.info.