Picking up Nickels

Wednesday, April 16, 2008

March CPI-U numbers released: Grab some April 2008 issue I Bonds!

The U.S. Bureau of Labor Statistics released the March 2008 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.87% since last month.

As I have mentioned before, now (along with the release of the September CPI-U) 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 April 2008 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 September 2007 (208.49) and March 2008 (213.528) (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 6.06% (using 1.20% fixed & 4.83% variable) for the second 6 months. As anticipated, I Bonds are once again an attractive investment for the first time since October 2005, since the yield for 1 year CDs is currently hovering around 4% and could continue to fall in anticipation of an additional FOMC cuts rate on April 30th.

Please note that effective January 1st, 2008, the Treasury cut the I Bond annual purchase limit to $5000 per social security number. Under the new rules, you can purchase up to $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.


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