March CPI-U numbers released: Pass on April 2011 issue I Bonds

The U.S. Bureau of Labor Statistics released the March 2011 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.98% month over 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 2011 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 2010 (218.439) and March 2011 (223.467) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2011 issue I Bonds:


That means these bonds would earn a rate of 0.74% (using 0% fixed & 0.74 variable) for the first 6 months and 4.60% (using 0% fixed & 4.60% variable) for the second 6 months. Based on this, April 2011 issue I Bonds are once again a competitive investment when compared to something like the 12 month CD @ 1.75% APY currently being offered by Connexus Credit Union.

Despite the 2%+ overall rate that April 2011 I Bonds will have over the next 12 months, I will be passing on them. I think that the 0% fixed rate for the life of the bond combined with the 0.74% composite rate for the first six months make these a deal breaker. Even if the fixed portion of May 2011 issue I Bonds remains at 0%, I would rather take the 4.60% rate for the first six months and gamble that the composite rate for the second six months would be greater than 0.74%. On top of that, it's not even out of the question to hope for a non-zero fixed portion to appear next month. Personally, I plan on buying $10,000 ($5k paper & $5k electronic at treasurydirect.gov) worth of I Bonds in 2011 myself, but will likely wait until the September 2011 CPI-U numbers come out in October before pulling the trigger.