I purchased 10K of Series I in October of 2021 at 3.54%. It has been 6 months and I calculate the interest to be $177 but when I look at my account it only shows $116. What am I missing?
Answers
TreasuryDirect's calculation does take it into account.
ETA: it has not "been six months"; it's been seven months (October, November, December, January, February, March, April).
TD factors in the 3 month penalty in the interest it shows if you haven't owned the bonds for more than 5 years. Basically, think of what the account shows as "how much interest I'd get if I cashed out right now" rather than simply "how much interest I have accrued so far"
And Ibonds post interest for the entire month regardless of what day of the month you bought them in. So when you bought in October, you got credit for the full months worth of interest even if you bought on Oct 31st. So your actual interest (assuming you plan on holding for more than 5 years) should be around 236 not 177 even though the account shows 116.
Since you bought in October (right before the Nov rate change) you can use the paper bond calculator to get a rough idea of your actual interest by adjusting your issue date by 3 months IE use 7/2021 instead of 10/2021. (you'll have to use 1,000 and multiply the result by 10 since 10,000 isn't a valid bond value for paper ibonds). Once 5 years is up, the full interest will show in your account and you won't need to "adjust by 3 months" any more.
https://treasurydirect.gov/BC/SBCPrice
"So when you bought in October, you got credit for the full months worth of interest even if you bought on Oct 31st."
Gotta be careful for two reasons. (Only the first is of any significance in the context of this discussion.)
1. If you purchase a bond on the last business day of a month, I believe you may not get interest for that month. The bond's "Issue Date" may well be the subsequent month. I'm basing this on Ken Tumin's account of an experiment he conducted in 2011.
If you purchase on the penultimate business day of the month, I think you'll be ok -- Ken Tumin report of his 2011 experiment found that a purchase on that day worked; I purchase one business day before that, so I have no experience with Ken's result.
Ken's May 2, 2011 article, "Treasury Announces New Series I Savings Bond Rate of 4.60%" discussed the experiment. Ken wrote:
"I ran an experiment last week at Treasury Direct to see how late in the month you could buy a savings bond without having the issue date be pushed into the next month.
"I purchased a small I Bond at 1:20pm CDT last Thursday on 4/28/2011 from my Treasury Direct account. Before I submitted the order, I was informed that the purchase date would be moved to the "next available business day". That would be Friday April 29th. I assumed this would likely be the issue date, but after I submitted the order, the confirmation information included the following note: "Effective Date(s): Security purchases are generally issued to your TreasuryDirect account within one business day of the purchase date."
"I just checked my TD account this morning, and the issue date was in fact April. I also checked my bank account which is linked to the TD account, and the bank account was debited on Friday 4/29/2011.
"In summary, I purchased the I Bond at Treasury Direct on Thursday 4/28/2011 and the issue date was April. So if you want the issue date of the savings bond to be the current month, you should make sure your purchase is no later than the second to last business day of the month.
"I can't say buying the savings bond on the second to last business day of the month will always guarantee an issue date of the current month. To play safe, you may want an extra day before the end of the month. One thing to note was that my bank account was already linked in my TD account. If you're just setting up your TD account or if you're trying to link a new bank account, you'll definitely need more time."
But please remember that Tumin's May 2, 2011 article is eleven years old.
Happy Birthday!
2. much more of a "gotcha" than a "reason":
October 31, 2021 was a Sunday, not a business day.
1. The reason to be careful isn't that it's impossible for your transaction to go through (IE "buy") on the last business day of the month, it's that if you put in your order on the last business day of the month, it likely won't get processed before the next day. (IE the first of the following month). In other words, give yourself some wiggle room for the transaction to complete when making your orders.
2) Other years October 31st doesn't fall on a Sunday. Regardless, the point remains the same: it doesn't mater which day of the month your buy is completed on, you get credit for the whole months interest.
As to methods of reporting savings bond interest on income tax returns, this has nothing to do with "accruals" or "counting on [a] statement to determine how much interest my ibond earned in a year." Do not divide, multiply, add or subtract. Instead, carefully read the pertinent portions of IRS Publication 550, "Investment Income and Expenses" and, especially, page 7 of the PDF at
https://www.irs.gov/pub/irs-pdf/p550.pdf
If you are reporting savings bond interest on an annual basis (rather than reporting it upon redemption or maturity), follow the Internal Revenue Service's instructions for "Method 2":
"Choose to report the increase in redemption value as interest each year."
(italics added)
Note it is the "increase in redemption value" that needs to be reported. You can determine this via TreasuryDirect. It is the change in value that is reported as interest. It is not the bondholder's determination of the amount of interest that has been accrued or has been earned. It is the change in "value" that is _reported_ "as interest".