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SUSAN TOMPOR: Series I is best among U.S. bonds

Savings bonds are one of those do-good gifts that folks think about during the wedding and graduation season.

But nobody's exactly registering for a Series EE or Series I Bond, as they would for a special kind of toaster.

So what bond do you pick? At this point, the I would do.

A newly issued I Bond has an annualized rate of 3.74 percent, but that rate could go up or down every 6 months.

By contrast, a new Series EE Bond has a fixed rate of 3.4 percent for the next 20 years.

This month, we saw two notable moves - both involving rate cuts.

Here are the changes:

Series I Bonds bought in May through October will carry a rate of 3.74 percent. That rate continues for 6 months after you buy the bond.

A key point to understand, though, is that I Bonds are made up of two rates.

There is a fixed rate that stays with the bond for 30 years and a variable rate that changes every six months after you buy the bond, based on inflation.

For newly issued I Bonds, the fixed rate is 1.3 percent plus 2.44 percent for inflation.

Previously, I Bonds issued from November 2006 through April started out with a rate of 4.52 percent. That was based on a 1.4 percent fixed rate and a 3.12 percent inflation rate.

With that cut to the fixed rate, new I bonds are a little less attractive.

It takes $50 to buy a paper I Bond with a $50 face value.

Series EE Bonds bought from May through October have a fixed rate of 3.4 percent - that's down from 3.6 percent for bonds bought from November 2006 through April.

After 20 years, the fixed rate on the Series EE ends and the rate will change to a new undetermined rate. The bond will continue to earn interest for another 10 years.

It takes $25 to buy a paper EE Bond with a $50 face value.

Savers can spend as little as $25 for I Bonds or EE Bonds, if they buy the bonds electronically and have an online account through www.treasurydirect.gov.

Some experts still give the edge to the I.

If inflation runs at an average or above- average pace, the I Bond bought now would do better than the fixed rate of 3.4 percent on comparable Series EE bonds, said Daniel Pederson, a Detroit-based savings bond expert and author of "Savings Bonds: When to Hold, When to Fold and Everything in Between" (Sage Creek Press, $19.95).

But remember at some points, the I Bond could dip for a six-month stretch, too.

Pederson said he's met savers who rushed to buy I Bonds from November 2005 through May 2006 when the combined rate was 6.72 percent.

But those savers were hugely disappointed when that same bond's rate tumbled 6 months after they bought it. They saw the rates drop to 2 percent for the following 6 months.

It's a volatile bond. The rate on those same bonds then climbed to 3.12 percent for the next six months. It's now 3.44 percent for those I Bonds.

You must wait 12 months before cashing in a new bond. You'd lose three months of the most recent interest if you cash savings bonds before holding them for 5 years.

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