March CPI-U numbers released: April 2009 issue I Bonds worth considering
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 2009 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 2008 (218.783) and March 2009 (212.709) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2009 issue I Bonds:
Wow, I believe that this is the first time that I Bonds have had a negative variable portion since they were introduced in 1998. That means these bonds would earn a rate of 5.64% (using 0.70% fixed & 4.94 variable) for the first 6 months and 0% (using 0.70% fixed & -5.56% variable) for the second 6 months. Based on this, I believe I Bonds are once again a competitive investment when compared to something like the 11 month CD @ 3.00% APY currently being offered by Connexus Credit Union.
I believe that April 2009 I Bonds are a reasonable buy at this time even with a 0% composite rate for the second six month period. Please note that even with a negative composite rate, I Bonds do not lose money even during periods of severe deflation. The earnings rate can't go below zero and the redemption value of your I Bonds can't decline (see treasurydirect.gov for more info). I will be buying $5000 worth of April 2009 I Bonds myself and will reevaluate what to do with them in April 2010. If speculation by some that current monetary policy will start to create a high inflationary environment by then, I will probably hang on to them. If they're not an attractive deal at that time, I will redeem them and essentially pay no penalty by forfeiting three months worth of 0% interest.