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The next question I asked is- what inflation rate is needed so that the combined fixed and inflation rates is greater then a bank CD.

Using the equation provided on the treasury web site that shows the relationship between inflation rate and fixed rate, I reverse calculated a required inflation component of approximately 2%.

Math Man,

I don't know what kind of math you are using. Currently, you can get CDs, depending on maturity, over 5%, as high as 5.75%, with 5-years with $500 minimum available at 5.3%.

That means, even with high state taxes and some compounding bonus for Savings Bonds, you need a 4% inflation rate over a long time to stay with the I-bonds. And, even with that, you'd do better cashing in and getting 2.4% or so TIPS.

We warned people against 1% TIPS with the high initial inflation component. There were some people who figured out how to get 2 high inflation adjustments, then take a 3 month penalty and get out, and they did slightly better than other 15 month options. But they went in with their eyes open.
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