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I-Bond Rate CalculationThe I-bond rate is calcualted using a combination of the fixed rate (currently 0.00%) and a semi-annual variable inflation rate (currently 1.53%). These together make the I-bond's interest rate.
This is how the composite rate for I-bonds issued from November 2011 through May 2012 was calculated:
Fixed rate = 0.00%
Semiannual inflation rate = 1.53%
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.0153) + (0.0000 x 0.0153)]
Composite rate = [0.0000 + 0.0306 + 0.0000000]
Composite rate = [0.0306000]
Composite rate = 0.0306
Composite rate = 3.06%
The 3.06% earnings rate for I-bonds purchasesd from November 2011 through April 30, 2012 applies to their first six months after issue. The earnings rate combines a 0.00% fixed rate of return with the 1.53% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). When the inflation rate is less than zero, the I-bond's earnings rate will be less than its fixed rate, but the earnings rate is never less than zero.
Next: I Bond Tax Advantages
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