Picking up Nickels

Tuesday, October 18, 2016

September 2016 CPI-U numbers released: November 2016 I Bonds are a buy!

The U.S. Bureau of Labor Statistics released the September 2016 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.24% last month.

As always, now 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 October 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 March 2016 (238.132) and September 2016 (241.428) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2016 issue I Bonds.

That means these bonds would earn the current anemic rate of 0.26% (using 0.10% fixed & 0.08% variable) for the first 6 months and 2.86% (combined 0.10% fixed & 1.38% variable) for the second 6 months. It goes without saying that it makes sense to wait until November to make the purchase to avoid six months of 0.26% interest. Even though we only know the interest rate for the first six months of November 2016 Series I savings bonds, a minimum composite rate of 2.76% (assuming a 0% fixed portion) is market beating when compared to short term investments like the 1 year CD @ 1.30% APY currently being offered at Everbank.

I will personally be buying the maximum amount from treasurydirect.gov in November since I haven't made any online I Bond purchases so far 2016. In fact, a 2.76% rate is so attractive in this environment that I will probably purchase even more in January 2017.


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