I Bond Rate and Yield

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
chrisjul
Posts: 131
Joined: Sun Jan 06, 2008 3:15 pm

I Bond Rate and Yield

Post by chrisjul » Sat Jan 13, 2018 6:37 pm

I have a few old I Bonds and was looking at the Treasury Direct inventory of my bonds. There is a "Rate" listed at 4.99% and a "Yield" listed at 5.18%. They were issued in Oct, 2001.

How are these interpreted? Is one a composite number? What are these bonds currently earning?

Thanks in advance for the help!

Grt2bOutdoors
Posts: 19547
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I Bond Rate and Yield

Post by Grt2bOutdoors » Sat Jan 13, 2018 7:09 pm

chrisjul wrote:
Sat Jan 13, 2018 6:37 pm
I have a few old I Bonds and was looking at the Treasury Direct inventory of my bonds. There is a "Rate" listed at 4.99% and a "Yield" listed at 5.18%. They were issued in Oct, 2001.

How are these interpreted? Is one a composite number? What are these bonds currently earning?

Thanks in advance for the help!
The bond is currently earning 4.99%. The yield is the composite rate earned over the life of the bond to date. If you want to know more head over to www.treasurydirect.gov, click on individual then I bonds. An I bond issued in October 2001 is earning a fixed rate of 3.00% + a variable rate based on the underlying CPI-U index. For your particular bond, the variable rate is 1.99%. Would recommend you continue to hold this bond if you are able until final maturity in October 2031. People would salivate for a 3% guaranteed real return above and beyond inflation, even if it is eventually taxable at maturity. :D
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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

Re: I Bond Rate and Yield

Post by beardsworth » Sat Jan 13, 2018 7:13 pm

chrisjul,

This page at the Treasury Direct site should answer your questions about the composition of rates:

https://www.treasurydirect.gov/indiv/re ... dterms.htm

JBTX
Posts: 4281
Joined: Wed Jul 26, 2017 12:46 pm

Re: I Bond Rate and Yield

Post by JBTX » Sat Jan 13, 2018 7:17 pm

https://www.treasurydirect.gov/indiv/re ... dterms.htm

Ibonds issued may - October 2001 have a fixed rate of 3.0% plus the applicable inflation rate that applies to all ibonds. I’m not exactly sure where your quoted numbers can from but most recent composite return of May 2001 is 5.52%. That would be 3.0% fixed rate plus 2.52 % inflation rate (which I am assuming is 1.24% six month rate annualized = 2.52% )

User avatar
#Cruncher
Posts: 2695
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: I Bond Rate and Yield

Post by #Cruncher » Sun Jan 14, 2018 12:41 am

chrisjul wrote:
Sat Jan 13, 2018 6:37 pm
There is a "Rate" listed at 4.99% and a "Yield" listed at 5.18%. They were issued in Oct, 2001.
As Grt2bOutdoors says, the 4.99% "rate" is what the I Bond is currently earning and the 5.18% "yield" is the annualized return since it was issued. Beginning April 2018 the annual earnings rate (aka composite rate) will increase from 4.99% to 5.52%. Both are computed with the Treasury's formula shown here using the 3.00% fixed rate and the 0.98% and 1.24% semi-annual inflation rates announced May and November 2017:

Code: Select all

composite rate = fixed rate + (2 * inflation rate) + (fixed rate * inflation rate)
         4.99% = 0.0300     + (2 * 0.0098)         + (0.0300     * 0.0098)
         5.52% = 0.0300     + (2 * 0.0124)         + (0.0300     * 0.0124)
The 5.18% "yield" is computed as follows based on the value increasing by a factor of 2.2964 over the 32.5 six-month periods from October 2001 to January 2018 (e.g., to $229.64 for a $100 I Bond issued October 2001).
5.18% = 2 * (2.2964 ^ (1 / 32.5) - 1)

Post Reply