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I-Bond Rate CalculationThe I-bond rate is calcualted using a combination of the fixed rate (currently 0.20%) and a semi-annual variable inflation rate (currently 0.77%). These together make the I-bond's interest rate.
This is how the composite rate for I-bonds issued from May 2010 through October 2010 was calculated:
Fixed rate = 0.20%
Semiannual inflation rate = 0.77%
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0020 + (2 x 0.0077) + (0.0020 x 0.0077)]
Composite rate = [0.0020 + 0.0154 + 0.0000154]
Composite rate = [0.0174154]
Composite rate = 0.0174
Composite rate = 1.74%
The 1.74% earnings rate for I-bonds purchasesd from May 2010 through October 2010 applies to their first six months after issue. The earnings rate combines a 0.20% fixed rate of return with the 1.74% 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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