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URL:  http://boards.fool.com/i-bonds-variability-15566046.aspx

Subject:  I Bonds Variability Date:  8/14/2001  11:15 PM
Author:  RobbiePat Number:  1943 of 35272

Hello All,

Let me phrase some questions on I bonds to see if I understand how they really work. Right now the fixed rate is 3% and variable I rate is 2.9%. If I buy an I bond now what happens to this 5.9% rate when the treasury changes either fixed or variable or both? For example, if they change variable rate to say 2% does this mean that my 5.9% bond now becomes 5%? If they change the fixed rate to 1% does my bond remain at 5.9%? If only changes in variable rates affect older I bonds, doesn't this make them like a tax deferred money market account. except there is a fixed floor (3% now), and the rate can only change every 6 months?

If I understand them right, they seem like a pretty good deal, but don't expect your present 5.9% I bond to stay at that interest because it could drop all the way to 3%. On the other I bond rates could rise to very high levels if interest rates take off. Given all this, it seems I bonds could make a very easily managed bond ladder, you just buy them and forget them (for 30 years). What do you think?

Rob

Rob
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