Picking up Nickels

Friday, April 13, 2012

March CPI-U numbers released: April 2012 issue I Bonds are a buy

The U.S. Bureau of Labor Statistics released the March 2012 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.76% 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 2012 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 2011 (226.889) and March 2012 (229.392) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2012 issue I Bonds:


That means these bonds would earn a rate of 3.06% (using 0% fixed & 3.06 variable) for the first 6 months and 2.21% (using 0% fixed & 2.21% variable) for the second 6 months. Based on this, April 2012 issue I Bonds are a very competitive investment when compared to something like the 12 month CD @ 1.15% APY currently being offered by KeySource Commercial Bank.

The above average rates offered by April 2012 I Bonds over the next 12 months make them a STRONG buy in my opinion, and I have already maxed out my 2012 $10,000 annual limit at treasurydirect.gov and used the paper savings bond loophole to purchase I Bonds with my 2011 Federal Tax refund using IRA form 8888. If you have some cash that you're looking to put in a safe place where it can earn a decent yield over the next year, then April 2012 issue I Bonds should be high on your list. However, I would do so before the end of the month to lock in that 3.06% rate over the first six month period.


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