Picking up Nickels

Friday, October 15, 2010

September CPI-U numbers released: October 2010 I Bonds not terribly enticing

The U.S. Bureau of Labor Statistics released the September 2010 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.06% last month.

As I have mentioned many times 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 2010 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 2010 (217.631) and September 2010 (218.439) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2010 issue I Bonds:



That would mean these bonds would earn a rate of 1.74% (using 0.20% fixed & 1.54% variable) for the first 6 months and 0.94% (combined 0.20% fixed & 0.74% variable) for the second 6 months. With a lowly 0.20% fixed portion, this is a lukewarm investment when compared to the 1 year CD @ 1.75% APY currently being offered by Connexus Credit Union.

With the low period of inflation we're currently experiencing (with no 2011 cost-of-living increase for Social Security recipients), buying October 2010 I Bonds is not a no-brainer at this time. With no large increase in the fixed portion expected in November, I personally will be waiting until late April 2011 before considering an I Bond purchase.

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