Picking up Nickels

Thursday, April 15, 2021

March CPI-U numbers released: April 2021 issue I Bonds OK, but wait till May

The U.S. Bureau of Labor Statistics released the March 2021 Consumer Price Index (CPI-U) inflation data on Tuesday, which rose by 0.71% last month, the largest increase we've seen since in quite some time.

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 2021 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 2020 (260.280) and March 2021 (264.877) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2021 issue I Bonds.

That means these bonds would earn a composite rate of 1.68% (using 0% fixed & 0.84 variable) for the first 6 months and 3.54% (using 0% fixed & 0.1.77% variable) for the second 6 months. Based on this inflation spike, April 2021 issue I Bonds are very compelling when compared to something like the 12 month CD @ 0.80% APY currently being offered by Lafayette Federal Credit Union.

Basically, the May rate reset is the best composite rate we've seen in ten years and the elevated inflation trend may continue as COVID-19 stimulus continues to work through the US economy. I also anticipate the current 0% fixed portion continuing through May, but it is possible that it could increase slightly with the next rate reset. While the 1.68% composite rate for April 2021 bonds is very competitive, I'd suggest waiting until May before buying to get that higher 3.54% rate. I certainly intend to max out my annual purchase in May myself.


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