Picking up Nickels

Tuesday, April 15, 2014

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.

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