Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays.
As a reminder, the rate for Series I Savings Bonds is made up of two pieces: the fixed rate and the variable rate. The fixed rate is set by the feds, and has been at 0% since the fall of 2010. The variable rate is pegged to inflation, and can be easily calculated if you know how much the CPI-U has changed over the past six months. To do this, simply divide the old CPI-U into the new one and you’ll get an estimate of the semi-annual inflation rate. From there, you just double it to estimate the annual change and add the fixed rate.
Back in March, the CPI-U was at 229.392 and by this past September it had increased to 231.407. This works out to a 0.878% increase (231407/229.392 = 1.00878). If we double this, we get 1.76%. So… The variable rate should be 1.76% starting in November.
As for the fixed rate, I doubt it will be increased from the current 0%, but stranger things have happened. Assuming it remains at 0%, you can either buy now and get 2.20% (current variable rate + 0%) for the next six months, followed by 1.76% (new variable rate + 0%) for six months, or you can wait until Nov 1st and get 1.76% for six months (new variable rate + presumptive fixed rate).
If it were me, I’d buy now. Either way, these rates beat the available rates for online savings accounts at any number of banks.
What about you? Do you invest in I bonds? If so, have you already bought your allotment for 2012? Or were you holding out in hopes of better rates?
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