Picking up Nickels

Wednesday, October 19, 2011

September CPI-U numbers released: October 2011 I Bonds are a strong buy

The U.S. Bureau of Labor Statistics released the September 2011 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.15% 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 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 March 2011 (223.467) and September 2011 (226.889) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2011 issue I Bonds:

That would mean these bonds would earn a rate of 4.60% (using 0% fixed & 4.60% variable) for the first 6 months and 3.06% (combined 0% fixed & 3.06% variable) for the second 6 months. Even with a useless 0% fixed portion, this is a very strong investment when compared to the 1 year CD @ 1.36% APY currently being offered by DCU.

With the continuing uptick in inflation we're currently experiencing (including the first cost-of-living increase for Social Security recipients since 2009), buying October 2011 I Bonds ASAP is a no-brainer. With no large increase in the fixed portion expected in November and the discontinuation of the savings bond sales at financial institutions on 12/31/2011, now is the time to max out your paper and electronic I Bond purchases.

I'd also like to add one final piece of advice with regard to those planning on buying paper I Bonds at your local financial institution. I recently went to buy an I Bond for my niece at my local Bank of America branch and was surprised to learn that they have discontinued savings bond sales as of 10/1/11. If you are having a similar difficultly buying paper I Bonds locally, you have the option to purchase paper I Bonds by filling out the form at savingsbondsdirect.gov found here and mailing a copy of this form along with a check made out to the specified Federal Reserve bank.


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