Made me look. I haven't been paying much attention to the yields. These were just a safe place to park the college fund when we needed to move from stocks into principal protection.Nords, you are probably aware of this but if you are selling 2007 I-bonds, they pay about 1.2% before inflation. The current 5yr TIPS is -1.0% (negative rate). Those older I-bonds are keepers in my opinion.
One I bond is from July 2006 with an interest rate of 4.48% (1.4% over inflation). A second is from Jan 2005 with an interest rate of 4.08% (+1%). A third is from Oct 2005 at 5.83% (+1.2%). Not quite the gold-rush days of 1998-2001.
These are great bonds to have if you're seeking government bond assets, but government bonds are no longer appropriate for us. We have enough annuitized inflation-adjusted federal income (my pension now, spouse's starting in 2022) that we're selling off the bonds when we get a good chance. Paying for college is a good chance.
Tuition is covered by NROTC so we can't use them for tuition expenses. However all together they'll pay about four more semesters of room & board, plus a "happy graduation" modest contribution to her first year of the Thrift Savings Plan. For her next two college years, we're cashing them in the order of lowest yield to highest and sending them through a 529 account so that the accumulated interest is tax-free. Of course we'll pay the taxes on anything that doesn't go through the 529.
I don't mind paying taxes, but for the next few years we're paying right at the top of the 15% bracket to finish converting our conventional IRAs to Roths. Starting 2022 we'll be in the 25% tax bracket just from pension checks, so this is the time to convert.
Harvesting the I bonds allows us to conserve the college fund's CDs (2.75%-3.5% maturing in 2015) for other investment opportunities. (I'm thinking equities-- a small-cap value index and a large-cap dividend index.) All we need is a nasty recession or two, and I suspect we'll have at least one more before the decade is over.