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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35383  
Subject: Re: Question On I Bonds Date: 6/5/2003 4:43 PM
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Greetings Foolferlove,

For example, I have some I-bonds from a few years ago with a 3.6% fixed rate. But I also bought some bonds the other day with the 1.1% fixed rates. For the life of these bonds, the ones with the higher fixed rate will always pay 3.6 - 1.1 = 2.5% MORE than the recent ones. That's because the inflation rate for both bonds will be the same and adjust together every 6 months.

What happens if the inflation rate is -1.8% or lower? I'll admit the likelihood of this isn't high but run the numbers in this case.

In this case both bonds would have a negative yield according to the formula but http://www.savingsbond.gov/sav/sbifaq.htm states : "In the rare event that the CPI-U is negative during a period of deflation and the decline in the CPI-U is greater than the fixed rate, the redemption value of your I Bonds will remain the same until the earnings rate becomes greater than zero."

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