Calculating the Rate on Series I Savings Bonds

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.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

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.

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.