If the inflation rate for the next six months is low, three months after a bond's next rate period starts would be an ideal time to redeem. Make sure you understand how Savings Bond rate periods work.

1. I was planning to make a large I-bond purchase in March. Now, I am inclined to wait until April 19, and then ask you to let me know the likely inflation interest component. If negative, or even very low, I will instead take out a 6 month C.D.at 4.7 to 5.0%, and consider making my next savings bond investment 6 months later if the inflation factor comes back. Please comment on this strategy?

2. I may want to sell some I-bonds with low 1% fixed rates that are under 5 years old. Since the penalty is giving up 3 months interest, if the new combined rate starting May 06 is as low as you are now estimating, might this be a good time to sell from the point of view of minimizing the penalty?

But all that counts for I bonds is what the index is in September and March.

In March 2005 the index was 193.3 and in September it was 198.8. This huge jump accounts for the large 5.70% inflation component in current I bond rates.

For the next six months, the inflation component will depend on the level of the index in March. It's impossible to predict what that level will be. However, January's level was below September's, which hints that the next inflation component could be relatively low.