March CPI-U numbers released: April 2014 issue I Bonds are a compelling buy

The U.S. Bureau of Labor Statistics released the March 2014 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.64% 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 2014 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 2013 (234.149) and March 2014 (236.293) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2014 issue I Bonds:

That means these bonds would earn a rate of 1.38% (using 0.2% fixed & 1.18 variable) for the first 6 months and 2.04% (using 0.2% fixed & 1.84% variable) for the second 6 months. Based on this, April 2014 issue I Bonds are a competitive investment when compared to something like the 13 month CD @ 1.25% APY currently being offered by Quorum Federal Credit Union.

The above average rates offered by April 2014 I Bonds over the next 12 months make them a compelling buy in my opinion, and I plan to max out my 2014 $10,000 annual limit at treasurydirect.gov by the end of April.  While I could get a better rate of return for the first six month period by deferring my purchase until May, I am unconvinced that the modest 0.2% fixed rate portion currently available (the first above 0% offered since May 2010!) will remain when rates are reset in May. 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 2014 issue I Bonds are worth considering.  They continue to be a pretty good deal for a government-backed security that can never lose money and is not subject to state and local income tax.

April 2014 Financial Asset Roundup

Here are my current financial assets as of the market close on April 10th, 2014:

Asset	Mar 2014	Apr 2014	Change
Checking	2,680	6,585	3,905
Money Market	52,883	50,456	-2,427
Savings Bonds	81,945	82,067	122
Treasury Bills	0	0	0
CDs	62,300	62,477	177
Brokerage	118,830	120,249	1,419
401k	136,735	137,834	1,099
Roth IRA	89,245	87,884	-1,361
SEP IRA	444,793	433,380	-11,413
529 Savings	102,349	102,812	463
Total Assets	$1,091,760	$1,083,744	-$8,016
			-0.73%

After a volatile ride over the past month, the S&P 500 is down 2.35% since the last update:

(chart courtesy of msn.com)

On the jobs front, the unemployment rate for March was flat at 6.7% with 192k new jobs added. Oil prices are up a bit, rising from $101 to $104over the past month. The big news of the week has been the Heartbleed security vulnerability that has compromised the OpenSSL open source implementation of the SSL and TLS encryption protocols used by many web sites for secure http (https) communications. It's been difficult to know what sites may have been compromised, but mashable.com has a nice list of popular sites and their status. Interestingly, many financial institutions (Vanguard, Fidelity, Bank of America, etc.) claim that they are not affected by this security hole. That is somewhat comforting I suppose...

On the financial front, my only pending move at the moment is to watch the March CPI-U numbers due for release next week to help evaluate a potential Series I Savings Bond purchase. I'm currently leaning toward an April 2014 I Bond purchase due to the 0.2% fixed rate portion (it had been 0% for three years!), but I'll be able to make a more informed decision when the March numbers come out on Tuesday, April 15th. I also took a distribution from my S Corp's profits that currently accounts for the inflated balance in my checking account (more on that below).

Unfortunately, a large portion of my checking account balance will be used to pay my 2013 Federal and state personal income taxes. Mrs. Frugalson has already adjusted the withholding on her W-4 form, so I'm hoping that we won't be caught off guard (or subject to an underpayment penalty!) when our 2014 personal tax returns are due next year.