## I bonds rates and returns

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Topic Author
raixx017
Posts: 57
Joined: Wed Feb 28, 2018 5:41 pm

### I bonds rates and returns

Hello Friends,

I have three rudimentary questions, that I'm struggling with.

1) https://www.treasurydirect.gov/indiv/re ... dterms.htm
mentions that the I-bonds are currently giving a rate of return of 2.58%. It is also written that The interest is compounded semiannually.
Does that mean, the actual rate of return is 2.6 ?

2) "If you redeem an I bond before it is five years old, you will lose the last three months of interest."
I wanted to know, how much I will loose in dollar amount, if I sell the bonds before 5 years ? I have looked for monthly return calculators online, but haven't been able to find one (the one that gives per-month amount). Can someone help me calculate this ?

3) If I redeem only a portion of the bond’s value, how can I calculate the amount (in dollars) that I will have to forfeit. For e.g. I buy I-bond for \$5000. Assuming rates remain the same, say 2.58%, if I sell \$3000 worth of bonds, how much of interest will I loose ? In dollar amount ?
(is it like 3000/5000 60% of the last 3 months interest will be lost ?)

Apologies if these are quite basic questions. Any help is greatly appreciated !

Regards.

sport
Posts: 8739
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

### Re: I bonds rates and returns

You cannot calculate the amounts you ask for because the combined interest rate on I bonds changes every six months. You can only calculate the dollar amount when you know the interest rate that applies at the time you lose the 3 months of interest.

whodidntante
Posts: 7124
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

### Re: I bonds rates and returns

The I-bond is a floating rate bond that has a fixed component (which is currently tiny at 0.1%). So you can only calculate yield for the year looking backwards.

For the first five years they hold back three month's interest so it is not reflected in your bond value. I think it's the last three months interest. It might be best to buy one and see how it works. You can buy a small amount if you like.

One thing to know is there is a mandatory holding period of one year, and they are serious about that.

vtMaps
Posts: 593
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

### Re: I bonds rates and returns

whodidntante wrote:
Thu Apr 12, 2018 1:52 am
One thing to know is there is a mandatory holding period of one year, and they are serious about that.
If you buy a bond today (4/12/18) or later this month, you can redeem it on April Fool's Day in 2019. That is (seriously) less than a year.

--vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

jpsc
Posts: 124
Joined: Sat Feb 10, 2018 11:05 pm

### Re: I bonds rates and returns

I-bond is best keep for more than a year to see the benefits

beardsworth
Posts: 2135
Joined: Fri Jun 15, 2007 4:02 pm

### Re: I bonds rates and returns

raixx017 wrote:
Wed Apr 11, 2018 10:38 pm

2) "If you redeem an I bond before it is five years old, you will lose the last three months of interest."
I wanted to know, how much I will loose in dollar amount, if I sell the bonds before 5 years ? I have looked for monthly return calculators online, but haven't been able to find one (the one that gives per-month amount). Can someone help me calculate this ?

3) If I redeem only a portion of the bond’s value, how can I calculate the amount (in dollars) that I will have to forfeit. For e.g. I buy I-bond for \$5000. Assuming rates remain the same, say 2.58%, if I sell \$3000 worth of bonds, how much of interest will I loose ? In dollar amount ?
As another poster pointed out, you can't calculate, in advance, the future redemption value of an I Bond because, although the fixed component of its rate stays the same for the life of that particular bond, the inflation component is subject to change twice a year.

You can, however, use the Savings Bond Calculator to see the present redemption value of a bond. If the bond is less than five years old and would have a three-month interest penalty, the chart will display a code to that effect, and the redemption value shown will be the amount after the penalty has already been subtracted.

And if, for example, you have a \$5000 I bond but are interested in the present-month proceeds for redeeming \$3000 of it, enter three \$1000 I Bonds with that same month of original purchase.

https://www.treasurydirect.gov/BC/SBCPrice

lahob
Posts: 33
Joined: Mon Feb 26, 2018 10:17 am
Location: USA

### Re: I bonds rates and returns

Everyone is focusing on your second question, which can't be answered, and ignoring the other two, which can.
raixx017 wrote:
Wed Apr 11, 2018 10:38 pm
1) https://www.treasurydirect.gov/indiv/re ... dterms.htm
mentions that the I-bonds are currently giving a rate of return of 2.58%. It is also written that The interest is compounded semiannually.
Does that mean, the actual rate of return is 2.6 ?
2.58% is the annualized percentage, so no. You'll get 1.29% over that six months. and then 1.16% over the following six months. We won't know the return after that until October.
3) If I redeem only a portion of the bond’s value, how can I calculate the amount (in dollars) that I will have to forfeit. For e.g. I buy I-bond for \$5000. Assuming rates remain the same, say 2.58%, if I sell \$3000 worth of bonds, how much of interest will I loose ? In dollar amount ?
(is it like 3000/5000 60% of the last 3 months interest will be lost ?)
Correct, you'll lose 60% of the last 3 months interest. The interest compounds, so how much interest you lose depends on how long you've held the bond. If you held it for exactly a year before selling, the answer would be:

(3000*1.0129^2 - 3000) * 0.25 = 19.4748

Assuming I've done that correctly, you would lose around \$19.

Topic Author
raixx017
Posts: 57
Joined: Wed Feb 28, 2018 5:41 pm

### Re: I bonds rates and returns

Thank you all for your replies.

@lahob wrote : 2.58% is the annualized percentage, so no. You'll get 1.29% over that six months. and then 1.16%
That's very useful. May I know how did you arrive at these numbers ? (for educational purpose)
OP wrote : Assuming rates remain the same....
Savings Bond Calculator is quite close to what I was looking for. However, just for educational purpose, I wanted to know is there a calculator out there ( or a formula that you can teach me ), that can help me get the monthly returns on an investment with x% rate of return, where the interest is compounded, say semiannual ( a generic formula will be best ... n times per year).

Thanks again. You all have been very helpful.