FinancialDave wrote: ↑Mon Oct 11, 2021 3:41 pm
The issue is in Dec 2020 I bought a $6000 I-bond. That rate was 1.68% annualized. The first 6 months total showed as $6050.40. $50.40 interest, exactly what I would expect.
Now the next 6 month period is @ 3.54 annualized. If that math is applied to the original $6000 the interest would be $17.70 per month or $106.20 for the 6 months. However, my account shows the interest for last month was only $16.80.
What is going on here? I would think the 1.77% would be compounded on the semiannual update of $6050.40 and actually be $17.85. Can't reconcile the $16.80 number??
As others have posted, the redemption values are rounded to the nearest cent for a $25 bond. The redemption values for other denominations are multiples of that. For a $6,000 bond the multiplier is 240.
After 6 months at a composite rate of 1.68%, the redemption value, without the early redemption penalty, of a $25 bond is $25.21 (=round(25*(1+1.68%/2),2)); that multiplied by 240 is $6,050.40. After the next six month with a composite rate of 3.54%, it is $25.66 (=round(25.21*(1+3.54%/2),2)); that multiplied by 240 is $6,158.40.
The redemption value after month M of a six month earnings period is the redemption value at the start of the period times (1+(compositeRate/2)^(M/6)) with the redemption value rounded to the nearest cent each month.
After one month of the second six month period, the value of a bond issued for $25. is $25.28 (=round(25.21*(1+3.54%/2)^(1/6),2)), which in a increase of $0.07 from the previous month. The increase from the previous month of a bond issued for $6,000 is $16.80 (=0.07*240).
After two months of the second six month period, the value of a bond issued for $25 is $25.36 (=round(25.21*(1+3.54%/2)^(2/6),2)), which in a increase of $0.08 from the previous month. The increase from the previous month of a bond issued for $6,000 is $19.20 (=0.08*240).
During the months of the second six month period, the increase in value of a bond issued for $6,000 is $16.80 for some months and $19.20 for other months.