Now Is Not The Time To Be Buying I-Bonds

The Consumer Price Index came in at a -0.6% for the month of November – the biggest monthly decrease in 56 years – mainly due to a large drop in gasoline prices. I wrote about just this scenario when I thought that purchasing I-bonds during this six month period was not a sound investment.

While there are still a few months left before the new I-Bond rate is announced, it is likely to be well below the current 6.73% rate. That coupled with the current I-bonds paying a base rate of just 1.0% (the lowest since it’s introduction) it makes little sense to purchase I-bonds at this time.

This will make for some interesting scenarios come next May. While there was a large decrease in CPI, the decrease was due to gasoline prices. The “core CPI,” which excludes food and energy prices, rose 0.2%, the same as the gain in October and in line with what most experts forecasted. This leads me to believe there won’t be a negative inflation rate over this six month period (especially since gas prices seem to be on the rise again), but inflation will likely come in quite flat (barring some unexpected event) this period.

For those who purchased in November, it will likely mean a second 6 months of interest that will negate a large part of the 6.73% they are currently earning. For those that wait, however, the lack of inflation may force I-bonds to significantly raise the base % to keep them competitive. This may make the May 2006 I-bonds a hidden opportunity to purchase (the rate won’t look outstanding, but the base rate will be high which could make them quite valuable if inflation increases after that).

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3 Responses to Now Is Not The Time To Be Buying I-Bonds

  1. Neo says:

    I was thinking of picking up some more I-Bonds since it is getting closer to the end of the month. Would you suggest waiting until the new rates get announced next year?


  2. pfadvice says:

    I don’t claim to be an I-bond expert, but coomon sense leads me to see no upside to buying I-bonds at the moment and a lot of possible downsides.

    I’m currently keeping my money earmarked for I-bonds in an HSBC banking account (4.25%) and will do so until I see the new rates next year. With the large decrease in the CPI my guess is that I-bonds will be at a lower rate than many of the online banks when the rates are updated.

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