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Someone writes:

Current I bond rates are significantly better than savings account rates at the military CUs, and comparable to CD rates, making them a reasonable option to consider, compared to leaving money in a CU.

To which I say, "Yes and no." I-Bonds are tax-advantaged, which bumps their current rate of 2.20% (through Oct 31, 2012) up by whatever one's marginal, state income-tax rate might be. But on a pre-tax basis, I-bonds offer only 73% (or less) of what can be obtained from a typical, high-yield checking-account at a credit union. Worse, if the penalty of forfeiting three-month's interest is factored in for holding periods of less than 5 years, then the yield-disadvantage of I-bonds increases further.

This isn't to say that buying I-bonds is to be avoided. It all depends on how much money one wants to lose, versus how many hassles one is willing to deal with. I-bonds are easy to get into and out of. But that convenience comes at a price. High-yield checking accounts are easy to get into and out of, but they do have ongoing administrative requirements.

Given that the opening post named a very tiny amount of money to be parked while awaiting a very immediate future need, whatever is done with it won't make much difference. Whether it is put under the mattress, or in a bank account, or in I bonds, won't make a significant difference. But the reasons why the choice is made are truly important, because they become a template for future financial decisions, and sound plans are the reason why some investors are doing well and most are doing so poorly.

What's the current, median net-worth in this country? A mere $77,000 according to some reports, closer to $277,000 according to others. Both of those amounts are laughably inadequate, and they are destined to become even smaller as the Fed rolls out QE3, QE4, QE4, all the while continuing to keep interest-rates as near zero as possible. The net-effect of their dual policy will be dollar-depreciation (AKA, price inflation), which is the reason why investors should not be holding a penny more of cash than they truly needed to maintain prudent levels of liquidity. And of the cash they do choose to hold, it behooves them to seek out the highest rates of return they can find, which, these days, will probably come from a high-yield checking account at a credit union, not I-bonds. (IMHO, 'natch)
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