Picking up Nickels

Tuesday, April 16, 2013

March CPI-U numbers released: April 2013 issue I Bonds are worth considering

First and foremost, a thought from a Massachusetts resident about the terrorist attack at the Boston Marathon yesterday.  As a past attendee of the annual Patriot's Day Red Sox game as well as someone who used to watch the Boston Marathon finish line from his office window, my heart goes out to the victims of the horrific attack yesterday. While I'm filled with anger at the perpetrators of such a heinous act, I'm also touched and amazed at the bravery and humanity displayed by the first responders as well as the average person on the street.

Now, on to less pressing matters. The U.S. Bureau of Labor Statistics released the April 2013 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.26% last month.

As always, 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 2013 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 2012 (231.407) and March 2013 (232.773) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2013 issue I Bonds:



That means these bonds would earn a rate of 1.76% (using 0% fixed & 1.76 variable) for the first 6 months and 1.18% (using 0% fixed & 1.18% variable) for the second 6 months. Based on this, April 2013 issue I Bonds are a competitive investment when compared to something like the 12 month CD @ 1.15% APY currently being offered by Bank of Internet USA.

The above average rates offered by April 2013 I Bonds over the next 12 months make them a compelling buy in my opinion, and I plan to max out my 2013 $10,000 annual limit at treasurydirect.gov by the end of April.  I also received the bulk of my 2012 Federal tax refund in the form of paper savings bonds using IRS form 8888, which unfortunately is currently the only way to purchase paper savings bonds.  If you have some cash that you're looking to put in a safe place where it can earn a competitive yield over the next year, then April 2013 issue I Bonds are worth considering.  However, I would do so before the end of the month to lock in that 1.76% rate over the first six month period.

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