I just purchased ibond a couple days ago and I got confused about the interest rate it shows. For recently purchase, it shows: interest 4.6% For last year April purchase, it shows: interest 1.04%
Since April 2010 fix rate is 0.4% so from my understading it should show the interest of 5% (4.6% + .04%) for my last year ibond by now? Please help me to understand this ibond interest better. Thank you.
I understand your confusion. There's a lag. It will come to you eventually.
I own that very same I-Bond. It is actually a 0.3% fixed rate (not 0.4%) and mine also shows that same 1.04%.
We'll be earning 1.04% through September. In October, we'll be earning 4.91% on it and that will apply for the next six months.
The reason for this is that when you buy an I-Bond you get a constant rate for each six month period but those periods start in the month you buy the bonds. For example, the rates on the April I-Bonds reset each April and October.
It uses the most recent semiannual inflation rate to determine that rate. Semiannual inflation rates are only set in May and November though. So for our April 2010 I-Bond, we started off using the semiannual inflation rate set in November 2009.
In October 2010 that process was repeated and we used the seminannual inflation rate set in May 2010.
In April 2011 it repeated again and we used the seminannual inflation rate set in November 2010.
In October 2011 it will repeat again and we will use the semiannual inflation rate set in May 2011. We now know what the rate will be for us since we know the semiannual inflation rate set in May (just a few days ago).