I bonds have a base interest rate and an inflation interest rate that are added together. The base interest rate is declared every 6 months for the next 6 month period, and is permanently assigned to a bond purchased during that 6 month period. The inflation rate is declared every 6 months and applies to every I-bond regardless of when it was purchased. It is calculated from the prior 6 months' CPI-U. What really confuses things is that the new inflation rate, announced 2 weeks ago, isn't applied to every I-bond immediately, but when a I-bond reaches its next 6-month anniversary. Then it sticks for a 6-month period.
When I bonds were first introduced about 25 years ago, the base rate was a bit over 3% for a few years. For the last few years the base rate has been zero percent. The current inflation rate of 7.12% will be what a newly purchased I-bond earns for 6 months. For an I-bond purchased when the base rate was over 3%, the total interest rate will be over 10% for its next 6-month period. If you hold the I-bond for less than 5 years, you lose the latest 3 months of interest (I hope I have those time periods correct). You also can't sell it in less than a year. So the worst case of buying one now would be 6 months at 7.12%, and the next 6 months at 0% (if the inflation rate goes to zero). Selling after a year would have resulted in a average return of about 3.5%. The probable case is better than that.
Also, I bonds are only available through electronic purchase and are tied to the account that you set up initially. what this means is that if you ever close that account, you have to jump through hoops to get the new account assigned to your savings bonds account so keep that in mind. Paper bonds are only available when you purchase bonds with your federal tax refund.
Correct me if I'm wrong, but don't IBonds lock you in for a minimum of 5 years with .gov? That rate is great now, but what happens 3-5 years from now when you are still locked in and the rate goes to shit? Taxes apply at the fed level as well. Would it not be better to shift bond investments in an IRA around from long term treasuries, long term corporate bonds, high yield corporate junk bonds, and TIPS with rotating yields that are most beneficial as current, and no tax consequences? Again, correct me if I'm incorrect. Good luck out there folks.
I bonds lock you in for one year. If you sell them before 5 years you forfeit the last 3 months' interest. If the interest rate goes to shit, just hold them for 3 months more and forfeit 3 months worth of shit. Can't hold them in an IRA.