How to shift CDs and US Savings Bonds when interest rates go up
Q: I was thinking of shifting money from a bank CD and Series EE Savings Bonds into a US I Bond. But should I wait until CD rates rise?
- C.L., Eau Claire, Wis.
A: Your dilemma is shared by many income-seeking investors. Though Series I bonds offer some inflation protection, they don't provide any current income and yield less than Series EE bonds. And you might owe federal income tax on any Series EE bonds that you cash in, says Gerald Townsend, a certified financial planner in Raleigh, N.C. So he recommends keeping the Series EE bonds.
If you have multiple CDs, as each one matures, Mr. Townsend suggests that you reinvest in new CDs with various maturity dates. This "laddering" effect should boost the average yield on your holdings, and will also keep some CDs maturing each year, allowing you to take advantage of any rise in interest rates.