I-Bond or CD?

Where to put your extra money, I-Bond or CD? Here are some comparisons between I-Bond and CD.

Rate
I-Bond: A fixed rate combined with an inflation rate, which changes twice a year. Current rate for I-Bond through April 2006 is 6.73%.
CD: Fixed rate. The highest rate for a 5-year CD as of 12/15/05 is 5.5%.
Early Withdraw Penalty
I-Bond: Can be cashed after 1 year. Before 5 years, forfeit 3 most recent months' interest. After 5 years, no penalty.
5-year CD: The penalty is usually 6 months’ interest.
Minimum Requirement
I-Bond: $25 is purchased via TreasuryDirect. (Maximum $30K per year)
CD: It depends. To get a higher rate, you need to deposit more than $10K.
Tax
I-Bond: Interest earnings are exempt from State and local income taxes and may be excluded from Federal income tax when used to finance education
CD: Interest earnings are subject to federal and state income tax.

In conclusion, I-Bond is a low-risk, liquid savings product. I think it’s better than CD. I usually purchase and manage I-Bonds via TreasuryDirect (https://www.treasurydirect.gov/indiv/indiv.htm).