New inflation numbers are out, so it’s time for the usual semi-annual update:
New Inflation Rate
March 2008 CPI-U was 213.528. September 2008 CPI-U was 218.783, for a semi-annual increase of 2.46%. Using this official formula, the variable interest rate for the next 6 months will be approximately 4.92%.
Buying Now? If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed an variable (well… total) interest rate of 4.84% for the next 6 months, and 4.92% for the six months after that. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur a 3-month interest penalty.
A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. Let’s say we buy on October 31st. You’ll be able to sell on October 1st, 2009 for an actual holding period of 11 months. (3-month interest penalty still applies.)
Not bad as a place for short-term cash reserves, but not necessarily the best. There are certificates of deposit with comparable interest rates, and you can still access your money early in an emergency.
Buying Later? If you wait until November 1st, you will get a new unknown fixed rate + ~4.92% for the first 6 months, and an unknown rate based on ongoing inflation after that.
Bought already? For those that bought back in April when the fixed rate was 1.2%, the next reset rate will be 1.2% + 4.95% = 6.15%. So we got 4.38% from April-September, then 6.06% from October-May, and now 6.15% from April-September ’09. And this is not counting that the interest is exempt from state income taxes. Yep, I’m keeping these for another 6 months.
Beware Low Purchase Limits
The annual purchase limit is now $5,000 in paper I-bonds and $5,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov. As for paper, here is a post on how to buy paper savings bonds from your local bank. I am already nearly maxed out for this year already, and don’t think I’ll be buying any more.