<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by pgary:
It works for me, but it depends on how you value the miles you get, which, in turn, depends on how you use them. You give up 1/4 of 4.66%, or 1.165% for the I bonds, and only 1/4 of 2.66%, or 0.665% for the EE bonds. I think most everyone would find the recyclying of the EE bonds worthwhile. And most everyone who flies internationally and/or business or first class would find recyclying of the I bonds worthwhile. This is especially true for those of us who probably won't keep all of our bonds for the full term anyway. I will keep a few for emergency money, but for most there are better tax free (and even taxable) investements.</font>
I'm sure you are aware of this, but the maximum interest lost is 3 months, regardless of how long you hold the bonds. (Minimum holding period is one year.) After 5 years there is no interest penalty. Also, the lost interest you calculated is correct if you redeem bonds now. Since the interest rates on the bonds change every 6 months (next change is November 1), the interest lost will change as well.
For the cash portion of your investment holding (or as emergency money), I don't believe there is a better investment right now. The bonds are risk-free and there is nowhere I know of that pays 2.66% or 4.66% tax-deferred. The rates will change in November and its very likely that the I-bond rate will drop significantly. If 6 month CPI change stays at 0% which is a real possibility, my understanding is the bond will only pay the fixed rate of 1.1%. That suggests to me that the EE bonds may be a better purchase at the moment. Thoughts?