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Subject:  Re: 3.06% rate for tax-deferred I-Bonds Date:  11/8/2011  3:45 PM
Author:  WendyBG Number:  33437 of 37043

The nice thing about I bonds is that the value of the principal doesn't go down if you have to cash them out when interest rates have gone up.

TIPS value does decline when interest rates have go up. The NAV of the fund that holds them declines. If you hold TIPS you have the option to hold them to maturity and get the par value of the principal. If you own TIPS through a fund, which never matures, you will lose principal if interest rates rise.

This is why I bonds hold their value in an exceptionally low interest rate environment (like now). TIPS are not as good, and TIPS funds are only good if you think that Treasury interest rates will not rise. (That will happen if the U.S. enters a lonnnngggg deflationary recession, like Japan's. If and when the economy recovers, Treasury rates will rise.)

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