The I-bond rate is calculated using a combination of the fixed rate (currently 0.00%) and a semi-annual variable inflation rate (currently 1.10%). 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 = 1.10%
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.0110) + (0.0000 x 0.0110)]
Composite rate = [0.0000 + 0.0220 + 0.0000000]
Composite rate = [0.0220000]
Composite rate = 0.0220
Composite rate = 2.20%
The 2.20% earnings rate for I-bonds purchased from May 2012 through October 31, 2012, applies to their first six months after issue. The earnings rate combines a 0.00% fixed rate of return with the 1.10% 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.