September 2020 CPI-U numbers released: November 2020 I Bonds are a buy

The U.S. Bureau of Labor Statistics released the September 2020 Consumer Price Index (CPI-U) inflation data last week, which increased by 0.139% over the past 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 2020 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 2020 (258.115) and September 2020 (260.280) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2020 issue I Bonds.

That means these bonds would earn the current rate of 1.06% (using 0% fixed & 0.53% variable) for the first 6 months and 1.68% (combined 0% fixed & 0.84% variable) for the second 6 months. Based on the unprecedented decline in deposit rates since the COVID-19 pandemic hit, I believe an October I Bond purchase is pretty compelling when compared to something like the 12 month CD @ 1.05% APY special currently being offered at USALLIANCE Financial.

Since I didn't see rates dropping as quickly as they have, I didn't follow my own advice and decided not to max out my 2020 I Bond purchase limit in April. I intend to remedy that next week, which will cost me the 0.2% fixed interest rate portion I would have if I had been more proactive.