Doesn't this seem like it is too good to be true? [View all]

Treasury I bonds pay great interest + bond yield. The one I bought in December yields 7% interest. It is based on the inflation rate and is re-adjusted twice a year.

Assume inflation stays at 5% for the next five years. Every year you buy a $10,000 bond. At the end of 5 years:

Bond-2022 = $10,000 + 25% interest = $12,500
Bond-2023 = $10,000 + 20% interest = $12,000
Bond-2024 = $10,000 + 15% interest = $11,500
Bond-2025 = $10,000 + 10% interest = $11,000
Bond-2026 = $10,000 + 05% interest = $10,500

Now, you are done spending your money. In 2027, you cash in Bond-2022, put $2,500 in your pocket and buy a new bond. And then do this every year: Cash in the 5 year bond, put $2,500 in your pocket and buy a new bond. Every year you get 25% interest payment. You can do this for the rest of your life. I understand the interest rates might change, but you are always pocketing the past 5 years interest rates, without having to spend any additional principle.