Laddering Works for CDs, Not for I Bonds

Dear Dr. Don,

Laddering CDs lets me sleep well since I don't need to be overly concerned with market swings. As a protection from inflation, a practice you have suggested numerous times, I purchase electronic I bonds monthly through TreasuryDirect and, occasionally, paper savings bonds through my bank. Since interest on I bonds runs in six-month cycles, I consider this a form of laddering. Am I correct or should I make large purchases a few times per year?

Thank you for your anticipated answer. - Richard Reinvests

Dear Richard,

I don't see spreading out the Series I bond purchases monthly as a form of laddering. That's because the inflation yield component changes only once every six months. The Series I savings bond you buy in June gets six months of the same inflation yield as the I bond you buy in July.

Let's take a step back for the other readers of this column who may not invest in these bonds, and explain that a Series I bond earns two yield components: a fixed yield that stays the same over the life of 30-year bond, and an inflation yield that changes every six months. The new inflation yields are announced on or about the first of May and the first of November. The inflation yield is based on the change in the U.S. Consumer Price Index for All Urban Consumers, or CPI-U.

The TreasuryDirect Web page, I savings bonds FAQs, explains how the Treasury sets the inflation yield:

The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September.

I don't see your monthly purchases as laddering because the bonds you buy within one six-month period will have exactly the same yields. I'd suggest that you let convenience decide whether to buy monthly or semiannually.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.