Picking up Nickels

Thursday, April 14, 2016

March CPI-U numbers released: Pass on I Bonds until November 2016

The U.S. Bureau of Labor Statistics released the March 2016 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.43% 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 2016 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 2015 (237.945) and March 2016 (238.132) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2016 issue I Bonds.


That means these bonds would earn a rate of 1.64% (using 0.10% fixed & 1.48 variable) for the first 6 months and 0.26% (using 0.10% fixed & 0.08% variable) for the second 6 months. Based on this, April 2016 issue I Bonds are obviously not a very competitive investment when compared to something like the 12 month CD @ 1.31% APY currently being offered by Air Force FCU. Similarly, May 2016 issue I Bonds are even less attractive since they will have a 0.26% composite rate for the first 6 months of ownership.

Basically, I think we're having a repeat of 2015 where it makes sense to hold off on any I Bond purchases until the next rate reset in November 2016 to avoid six months of 0.26% interest.

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