Picking up Nickels

Wednesday, October 17, 2007

September CPI-U numbers released: Pass on October 2007 I Bonds

The U.S. Bureau of Labor Statistics released the September 2007 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.28% last month.

As I have mentioned before, now is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for October 2007 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from March 2007 (205.4) and September 2007 (208.5) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2007 issue I Bonds:

That would mean these bonds would earn a rate 3.74% (combined 1.30% fixed portion & 2.42% variable) for the first 6 months and 4.36% (combined 1.30% fixed & 3.02% variable) for the second 6 months. This is obviously not an attractive rate considering that several online savings accounts continue to offer a return approaching 5% and Countrywide Bank is offering a 1 year CD @ 5.65% APY.

Based on that, I don't think it makes sense to purchase October 2007 I Bonds. It is worth re-evaluating I Bonds in late November 2007 though, since it is possible that the Treasury will set an attractive fixed rate for November 2007 issue I Bonds. I personally will be waiting until late April 2008 before considering an I Bond purchase.


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