<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by JoeDoakes:
The inflation factor could in theory be negative for any given six-month period, so the interest could in fact be applied to a decreasing amount (although as I stated in my earlier post, this has never happened - yet. I bonds have only been around for roughly five years or so).</font>
This has been stated before but bears repeated.
Note, of course, that after the first six months, the bonds can be redeemed at accreted value minus the last three month's interest. Therefore, it's always possible to avoid the negative interest rate. This is not true of standard inflation-indexed bonds. The fact that rates are set on a lagged basis helps you avoid this problem as well. These two features are quite valuable embedded "options" of savngs bond.