How is interest on I bonds calculated?
Q. Do I Bonds continue to earn the same interest over time as when they were purchased? For example, right now I bonds earn around 3.5% interest. Will they still earn that interest when the new rate is announced in October?
A. That’s an excellent question.
The actual interest rate you earn on I Bonds can indeed change after you buy the bond.
I bonds earn interest in two ways, Nicholas Scheibner, a certified financial planner with Baron Financial Group told Fair Lawn.
First, there is a fixed rate that is determined when the bond is issued, he said.
Second, there is an adjustable rate based on the rate of inflation, Scheibner said.
The total interest rate will be the combination of the two – fixed and adjustable.
“The fixed rate portion of the bond will not change during the term of the bond,” Scheibner said. “However, the adjustable rate indexed to inflation may change every six months based on the CPI-U – Consumer Price Index for all urban consumers.”
You can find out more at TreasuryDirect, which provides information on current I bond rates and historical rates:
“Bonds I should only be bought with money that you don’t need within 12 months,” he said. “Plus, if you cash the bond within five years, you’ll lose the last three months of interest.”
Email your questions to [email protected].
Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly electronic newsletter.