Another ibond question

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G21
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Another ibond question

Post by G21 »

If inflation portion of ibond comes in at 6% from 3.54% how can I figure how much more each 10,000 bond will increase in value each month until rate changes.

Would the 2.46% increase the value of each bond $246 per year or $20.50 per month?

Would the fixed rate portion be a factor in the increase?
SnowBog
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Re: Another ibond question

Post by SnowBog »

It won't change at all, at least not until your next rate change...

When you buy an I Bond, the "fixed" rate is fixed for its life, the "inflation" rate is fixed for the next 6 months. So unless you bought I Bonds in May, where the 6 month mark is November when the rates change, you'll see zero difference initially.

Instead, you'll continue to get whatever your current "inflation" rate is until you hit 6 months. At that point, you'll switch to whatever the Nov. rate is - and keep that rate for 6 months. Rinse and repeat...
SnowBog
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Re: Another ibond question

Post by SnowBog »

To think of it differently, everyone who owns I Bonds will get exactly 6 months of whatever the November rate is set at.

Those who purchase in November, or those who had purchased in May (6 months prior), will start getting the new rate in November.

But let's say you bought in January... The active rate was set the prior November, but your 6 months started in January and remains until July, when it will switch to the rates released in May. So those who bought in January or July (or who will buy next January) won't actually see the new rate until January 2022. But they'll still get 6 months of that rate...

So you always get 6 months of each rate (assuming you don't sell), but "when" the rate takes affect depends on when you purchased them.
FactualFran
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Re: Another ibond question

Post by FactualFran »

G21 wrote: Thu Sep 23, 2021 12:47 pm If inflation portion of ibond comes in at 6% from 3.54% how can I figure how much more each 10,000 bond will increase in value each month until rate changes.

Would the 2.46% increase the value of each bond $246 per year or $20.50 per month?
Not exactly.

US Savings Bonds compound semi-annually. The interest rate is applied to the redemption value the bond had at the end of its previous six month earning period. For a $10,000 bond, the interest rate would be applied to $10,000 only during the first six months (unless the earnings rate has been 0% since the bond was issued). For example, with a $10,000 bond issued May 2021, the earnings rate starting Nov. 2021 will be applied to $10,176.

Savings Bonds do not necessary pay exactly the same interest each month during a six month earning period. For example, with a $10,000 bond issued May 2021, during the first six month, the redemption value (ignoring early redemption penalty) has been $28 for some months and $32 for other months. The total for the six months will be $176.
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jeffyscott
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Re: Another ibond question

Post by jeffyscott »

FactualFran wrote: Thu Sep 23, 2021 4:08 pmSavings Bonds do not necessary pay exactly the same interest each month during a six month earning period. For example, with a $10,000 bond issued May 2021, during the first six month, the redemption value (ignoring early redemption penalty) has been $28 for some months and $32 for other months. The total for the six months will be $176.
I've never looked at the interest crediting that closely. I wonder why there would be such a wide range?

If it is going to earn $176 in those 6 months, it seems like it should be $28.85 in the months with 30 days and $29.81 in those with 31 days (plus an extra penny in a couple of the months to make up for the rounding).
Retired Bill
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Re: Another ibond question

Post by Retired Bill »

The government has its own method determining interest on various savings bonds including i bonds what would be illegal if a bank did it the same way and advertise the rate like the government does. It's too much for me to attempt to explain. I suggest you look at some of the tables for previous issues and see how the value of the bond changes over time. And read the government's explanation too.
SnowBog
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Re: Another ibond question

Post by SnowBog »

Now that you mention it, I don't show anything less than $1 interest.

My guess is they round to the nearest dollar.
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jeffyscott
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Re: Another ibond question

Post by jeffyscott »

SnowBog wrote: Thu Sep 23, 2021 10:02 pm Now that you mention it, I don't show anything less than $1 interest.

My guess is they round to the nearest dollar.
That would not explain a $4 range. And what if it were a $50 bond?

Maybe it's rounding to the penny for the value of the smallest denomination and then the larger bonds are valued at multiples of that?
SnowBog
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Re: Another ibond question

Post by SnowBog »

jeffyscott wrote: Thu Sep 23, 2021 10:29 pm
SnowBog wrote: Thu Sep 23, 2021 10:02 pm Now that you mention it, I don't show anything less than $1 interest.

My guess is they round to the nearest dollar.
That would not explain a $4 range. And what if it were a $50 bond?

Maybe it's rounding to the penny for the value of the smallest denomination and then the larger bonds are valued at multiples of that?
<shrug>

I have two years worth of max I Bonds and EE Bonds in both my account and spouses, as well as one year I Bonds in living trusts.

All of these accounts/bonds are not showing any values less then $1. None of them have any cents listed.

I've never thought to look into it, but based on what I'm seeing it appears they must do some interesting rounding/accruals/etc. That seems to align with this other post:
Retired Bill wrote: Thu Sep 23, 2021 9:52 pm The government has its own method determining interest on various savings bonds including i bonds what would be illegal if a bank did it the same way and advertise the rate like the government does. It's too much for me to attempt to explain. I suggest you look at some of the tables for previous issues and see how the value of the bond changes over time. And read the government's explanation too.
SnowBog
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Re: Another ibond question

Post by SnowBog »

None of this may matter to OP, as I think their question was already answered

But now I'm curious... I couldn't find anything definitive yet, but I'm thinking it's coincidental that I'm not seeing anything less then $1 in interest...

Although, it seems like they figure interest on the $25 bond and then just scale up to what you own. Also looks like they might round to the nearest $0.10, at least based on the example bbelow. The eexample also referenced some months being rounded up and others down.

Example found from another thread:
#Cruncher wrote: Wed Oct 02, 2019 11:54 am
FactualFran wrote: Thu Sep 05, 2019 2:59 pmThe interest payments within a semi-annual earning period are not necessarily the same each month. An I Bond that I have made the following sequence of interest payments during one semi-annual earning period: $6.40, $8.00, $6.40, $8.00, $6.40, $8.00.
This generally arises because of rounding. The value of all I Bond denominations is a multiple of the value of a $25 denomination whose value is rounded to the nearest penny every month. So, for example, the monthly change in value of a $4,000 I Bond will always be a multiple of $1.60 (1.60 = 0.01 * 4000 / 25). Here is an example for six months June to December 2017 -- when the composite rate was 1.96% -- of the 0.0% fixed rate I Bond issued December 2011. You can see that the value is rounded down the 1st, 3rd, and 5th months; and up the 2nd, 4th, and 6th months; which causes the jagged value progression.

Code: Select all

              -- Unrounded --    - Rounded -    - Scaled 160X -
   Date         Value  Change    Value   Chg     Value   Change             Formula
----------    -------  ------    -----  ----    -------- ------   ----------------------------------
06/01/2017    27.2300            27.23          4,356.80 
07/01/2017    27.2743  0.0443    27.27  0.04    4,363.20   6.40   27.2743 = 27.23*(1+0.0196/2)^(1/6)
08/01/2017    27.3187  0.0444    27.32  0.05    4,371.20   8.00   27.3187 = 27.23*(1+0.0196/2)^(2/6)
09/01/2017    27.3631  0.0444    27.36  0.04    4,377.60   6.40   27.3631 = 27.23*(1+0.0196/2)^(3/6)
10/01/2017    27.4076  0.0445    27.41  0.05    4,385.60   8.00   27.4076 = 27.23*(1+0.0196/2)^(4/6)
11/01/2017    27.4522  0.0446    27.45  0.04    4,392.00   6.40   27.4522 = 27.23*(1+0.0196/2)^(5/6)
12/01/2017    27.4969  0.0447    27.50  0.05    4,400.00   8.00   27.4969 = 27.23*(1+0.0196/2)^(6/6)
BrokerageZelda
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Re: Another ibond question

Post by BrokerageZelda »

The official redemption rates are based on the value of a $25 bond, rounded to the nearest cent. A $10,000 bond is worth 400 times the value of a $25 bond, and so its redemption value is rounded up or down in $4 steps. A $1,000 bond would be rounded up or down in 40-cent steps, and so on.
SnowBog
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Re: Another ibond question

Post by SnowBog »

BrokerageZelda wrote: Thu Sep 23, 2021 11:02 pm The official redemption rates are based on the value of a $25 bond, rounded to the nearest cent. A $10,000 bond is worth 400 times the value of a $25 bond, and so its redemption value is rounded up or down in $4 steps. A $1,000 bond would be rounded up or down in 40-cent steps, and so on.
:beer Mystery solved! :beer
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Mel Lindauer
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Re: Another ibond question

Post by Mel Lindauer »

I've noticed over the years that savings bond values are always in multiples of .20 cents (20, 40, 60 an 80) if that helps solve the mystery.
Best Regards - Mel | | Semper Fi
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jeffyscott
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Re: Another ibond question

Post by jeffyscott »

SnowBog wrote: Thu Sep 23, 2021 11:11 pm
BrokerageZelda wrote: Thu Sep 23, 2021 11:02 pm The official redemption rates are based on the value of a $25 bond, rounded to the nearest cent. A $10,000 bond is worth 400 times the value of a $25 bond, and so its redemption value is rounded up or down in $4 steps. A $1,000 bond would be rounded up or down in 40-cent steps, and so on.
:beer Mystery solved! :beer
I was guessing it was something like that, likely based on something archaic like the bank looking up the value in a table. I vaguely recall them doing something like that about 100 years ago, when I cashed in some EE bonds that had been given to my kids as gifts.

So a $10,000 bond is rounded to the nearest $4, thus explaining the $28-32 range.

That's pretty silly, since they now let you buy and sell any amount you like. Treasury Direct says: The minimum purchase amount for electronic EE and I Savings Bonds is $25, increasing with penny increments not to exceed $10,000. So if I do a transaction to buy $544, that increment will always be rounded to the nearest 21.76 cents, I guess :D .
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HueyLD
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Re: Another ibond question

Post by HueyLD »

For those who are mathematically inclined, the BH wiki has a very good write up on I bonds, courtesy of legendary sscritic.

https://www.bogleheads.org/w/index.php? ... ldid=46622
SnowBog
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Re: Another ibond question

Post by SnowBog »

HueyLD wrote: Fri Sep 24, 2021 8:18 am For those who are mathematically inclined, the BH wiki has a very good write up on I bonds, courtesy of legendary sscritic.

https://www.bogleheads.org/w/index.php? ... ldid=46622
Sadly, I looked there trying to find an answer, and completely missed the section that had the info I was looking for... :oops:

But kudos to sscritic for thy great writeup!
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