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Originally Posted by jeffrey
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. Purchasing I-bonds during this current six month period is not a sound investment.
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That's a little strong.
Like any other investment, these things are hard to time and should be a piece of your total portfolio, and really aren't for those who are chasing interest. Its a little like saying that if your favorite mutual fund is doing badly, its not a sound investment.
I have at least a year and a half of I-bonds under my belt. It means that all of my bonds will eventually get 6 months of a high(er) interest rate. Those 6 months are icing to me. The cake is that even at their lowest rate, I-bonds were still earning 1% above Emigrant Direct, with tax deferred interest, backed by the full faith of US gov (FDIC will fail before the US gov will).
In addition, the variable rate is calculated on the CPI-U for six months. I seem to remember that May, June and July 2005 CPIs weren't particularly high. It was August and September that really pumped the calculation up.
Not to say that I didn't miss the boat. I'm very disappointed that the fixed rate dropped. Imagine how you'd be set up these next six months if you bought some of these puppies when the fixed rate was 3.5%!
In general, the strategy for savings bonds: if you believe that inflation is going to be flat or negative (deflation), the fixed rate EE is the way to go; if you believe that we are going to undergo rising inflation or even hyperinflation, I-bonds are the way to go.