February 2008 Series I Savings Bond update
The U.S. Bureau of Labor Statistics released the February 2008 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.29% since last month.
This number is relevant for I Bonds since the variable interest rate portion of I Bonds is determined by the semiannual CPI-U rate. Now that the February 2008 CPI-U data is out, we only need the March 2008 CPI-U data (to be released on April 16th) to determine the initial variable interest rate for I Bonds issued on May 1, 2008. And as I've mentioned before, the date of release of the March and September CPI-U numbers are the best times to consider purchasing I Bonds since we know what the rate of return for April and October issue I Bonds, respectively, will be for both the first and second six month periods that they must be held.
As an example, let's assume that the March 2008 CPI-U number remained unchanged from the February 2008 number released today. Using the CPI-U data from February 2008 (211.693) and September 2007 (208.49) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2008 issue I Bonds:
That would mean these bonds would earn a rate of 4.28% (using 1.20% fixed & 3.06 variable) for the first 6 months and 4.30% (using 1.20% fixed & 3.07% variable) for the second 6 months. For the first time since October 2005, I Bonds are once again looking like an attractive investment at this rate, since the yield on equivalent 1 year CDs should continue to be in a free fall once the FOMC cuts rates again on March 18th.
One major downside to purchasing I Bonds is that the Treasury cut the annual purchase limit to $5000 per social security number, effective January 1st, 2008. Under the new rules, you still can purchase $10,000 worth of I Bonds by purchasing $5000 in paper bonds at your local bank in addition to the $5000 in electronic bonds that can be purchased online at treasurydirect.gov. There have been reports that it is still possible to purchase up to the old limit of $30,000 at the TreasuryDirect web site, but if you plan on doing that you should act soon since that loophole may be closed at any time.
This number is relevant for I Bonds since the variable interest rate portion of I Bonds is determined by the semiannual CPI-U rate. Now that the February 2008 CPI-U data is out, we only need the March 2008 CPI-U data (to be released on April 16th) to determine the initial variable interest rate for I Bonds issued on May 1, 2008. And as I've mentioned before, the date of release of the March and September CPI-U numbers are the best times to consider purchasing I Bonds since we know what the rate of return for April and October issue I Bonds, respectively, will be for both the first and second six month periods that they must be held.
As an example, let's assume that the March 2008 CPI-U number remained unchanged from the February 2008 number released today. Using the CPI-U data from February 2008 (211.693) and September 2007 (208.49) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2008 issue I Bonds:
That would mean these bonds would earn a rate of 4.28% (using 1.20% fixed & 3.06 variable) for the first 6 months and 4.30% (using 1.20% fixed & 3.07% variable) for the second 6 months. For the first time since October 2005, I Bonds are once again looking like an attractive investment at this rate, since the yield on equivalent 1 year CDs should continue to be in a free fall once the FOMC cuts rates again on March 18th.
One major downside to purchasing I Bonds is that the Treasury cut the annual purchase limit to $5000 per social security number, effective January 1st, 2008. Under the new rules, you still can purchase $10,000 worth of I Bonds by purchasing $5000 in paper bonds at your local bank in addition to the $5000 in electronic bonds that can be purchased online at treasurydirect.gov. There have been reports that it is still possible to purchase up to the old limit of $30,000 at the TreasuryDirect web site, but if you plan on doing that you should act soon since that loophole may be closed at any time.
posted by Frugal Frugalson at
9:12 AM
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