Calculating the Rate on Series I Savings Bonds
A quick guide to how it works, including what happens when rates turn negative.
The rate on series I savings bonds just went negative. How can that be? How are these things calculated?
Actually, the rate is 0%, not negative. Here’s how it works. The earnings rate (called the “composite rate”) for series I bonds includes two parts: the fixed rate, which applies for the 30-year life of the bond, and the variable inflation rate, which changes every six months based on changes in the consumer price index for all urban consumers (CPI-U). The new rates were announced on May 1. The fixed portion of the rate is 0%, and the inflation rate portion is -0.80% for the six months from May 1 to October 31 (the CPI-U decreased from 238.031 in September 2014 to 236.119 in March 2015). Although a negative inflation rate can offset some of the fixed rate, the Treasury does not let the earnings rate drop below zero.
The fixed-rate portion of any I bonds purchased between now and October 31, 2015, will remain 0% for the 30-year life of the savings bond. But the inflation rate could increase if inflation picks up again; the six-month inflation rate reached a high of 2.85% in November 2005. The interest is compounded twice a year.
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For more information about how I bond interest rates are calculated, and a history of the fixed and inflation rates since I bonds were first issued in September 1998, see Calculating Interest Rates on I Bonds. For help calculating the value of your savings bonds, input the type of bond, dollar amount, issue date and serial number into TreasuryDirect’s Savings Bond Calculator.
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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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