Cash in I Bonds for CDs?

[Molly]

CD rates are now higher than I Bond rates. I'm thinking of cashing in my I Bonds for CDs.

I will lose three months interest, but it might be worth it for the higher CD rate.

Thoughts?

[jp1]

I'd calculate the interest I'd earn on the CD for however long duration you're considering at the rate offered, calculate the 3 months of lost interest in the I Bond at the current rate and then look at whether the CD will earn more than what the I Bond would have.

Random example:

$10,000 I Bond. Interest rate 5%. Interest for 1 year, $500. Lost interest for early cancellation: $125.00.
$10,000 1 year CD. Interest rate 6%. Interest for 1 year $600. Subtract $125.00 for the lost I Bond interest - $475.00 interest earned. Decision: Stick with the I Bond for another year.

If the gap between the interest rate of the iBond and the CD is bigger then you may reach a different decision.

[Molly]

Thanks - That was very helpful. I have trouble calculating though, since the IBond rates change every six months. I will keep an eye on interest rates, and if the gap becomes bigger in favor of the CDs, I may switch at that point.

[jp1]

Thanks - That was very helpful. I have trouble calculating though, since the IBond rates change every six months. I will keep an eye on interest rates, and if the gap becomes bigger in favor of the CDs, I may switch at that point.

I agree that the regular change in I Bond rates complicates things since you can't predict the future i Bond rate. My guess is that it's going to keep drifting down. But that's just a guess and I have no idea how much. However, if it keeps sliding down then CD rates will likely do the same, but that won't matter if you've locked in a good rate for several years. I've got some money in a high interest savings account that is currently paying just over 4% but that rate changes month to month, so it is also likely to go down and since it's just a standard savings account that rate is not locked in beyond the current month so who knows what the "right" investment of that money is.

[nswef]

I am so grateful to have enough money that deciding which higher interest place to put it is a joy. Not worrying about any other interest rates is freeing, too, no mortgage, loans, debt. I'm a lucky woman.

[KingsX]

I am so grateful to have enough money that deciding which higher interest place to put it is a joy. Not worrying about any other interest rates is freeing, too, no mortgage, loans, debt. I'm a lucky woman.

Me too !

You and I are blessed

Reminds me of an old song by Billie Holiday: "God bless the child that's got his own.”

[KingsX]

I have some 30 year old EE savings bonds [I bought via my corporate employer] coming due the next few years [interest rates around 4 percent.]

As for CDs... Navy FCU had a great deal earlier this year - 15 months at 5% - and it allowed you to add money to the same CD the whole time. This gave me the opportunity to consolidate my other laddered CDs coming due this year. I hope Navy has another great deal when this CD comes due next year.

[Rogar]

My local brick and mortar bank bank is offering 5.4% interest for 6 months CDs, but only around 4% for one year. I could guess that either the higher rate is a come-on or if they are anticipating rates to go down. When it comes to I Bonds vs CDs I don't know that it's one or the other, but could be both. Most of my nest egg is mostly in fixed income and they are different in how they are operated. It would be nice to add a little profit to the mix, but I basically just want to keep up with inflation. As a friend has said, I don't need to hit a home run, I just want to get on first.