On 3/29/2022 I bought an I-bond ($10,000)
My account now shows a balance of $10,236.
I thought these were paying 9%??
Shouldn't it be $450 in interest (6 mo.)?
What am I missing.
Thanks
Answers
1) the amount TD shows is the amount with the penalty of the last 3 months interest for cashing out the bond before 5 years have passed. The way I look at it, TD is showing you what you would get if you cashed out right now (never mind that you can't cash out during the first year)
2) Since you bought in March your first 6 months is the 7.12% annualized rate not the 9.62% rate, the later rate doesn't kick in for your bonds until the 7th month.
$236 is correct for 4 months of interest (Apr, May, Jun, Jul) on $10k at the 7.12% rate. Aug, Sep & Oct's interest aren't included in the total as those are penalty months. Your actual total (assuming you intend to continue holding the ibonds) would be $356 for the first 6 months (at the 7.12% rate) and $80 for the first month of the 9.62% rate for a total of $436 in interest
FYI here is the month to month interest your $10k bond gets you for the first full year
7.12% annualize
Apr 60 total 60 TD showed 0
May 56 total 116 TD showed 0
Jun 60 total 176 TD showed 0
Jul 60 total 236 TD showed 60
Aug 60 total 296 TD showed 116
Sep 60 total 356 TD showed 176
9.62% annualize
Oct 80 total 436 TD showed 236
Nov 84 total 520 TD will show 296
Dec 84 total 604 TD will show 356
Jan 80 total 684 TD will show 436
Feb 84 total 768 TD will show 520
Mar 88 total 856 TD will show 604
while the interest is *for* March, you don't get the interest posted to the account until the start of the next month IE **April**. Which is why you don't get any interest for the month you sell because, like the month you buy, the interest for that month isn't "earned" (your choice of words) until the 1st of the following month. In other words, if you were allowed to buy and sell in the same month without penalty. A bond bought and sold in March would have $0 interest because you sold before any "earned" interest was posted,
So, your first 3 months of interest payments on a bond bought in March are credited in April, May, and June *NOT* March, April and May as you seem to think. With the 3 month penalty, July would be the first month you will see interest show up in your TD account, Not June as your thinking would have it. Don't just take my word for it, fire up the TD bond calculator Put in March issue date and see which month your first non-zero interest value is. Hint it isn't June.
https://treasurydirect.gov/BC/SBCPrice
Bottom line, the interest you'll see in your account (and the interest your account has actually earned) is as per the schedule I previously posted. Thus, a March bond has had interest credited to it in April, May, June, July, Aug, Sep and, yes, Oct. with the Aug 1st, Sep 1st and Oct 1st interest payments being the "penalty" ones that don't show up in the amount TD displays.
You stated in your original comment “$236 is correct for 4 months of interest (Apr, May, Jun, Jul) on $10k at the 7.12% rate”. I stated that “The $236 interest is for the 4 months of March to June, not April to July” referring to the period for which the interest was earned. The fact that TD credits the interest on the first day of the following month (or any later point if that were the case) is irrelevant.
If what you meant to say in your comment was that the $236 was for 4 interest payments/credits in Apr to July (that were for interest earned in Mar to Jun) then you are indeed right, but you did not say that.
Similarly, what you refer to as “Oct’s interest” is really September’s interest earned for the month of September and paid on Oct 1st.
The schedule that you posted is fine, but can be improved by adding a note stating that interest is credited on the first day of each month for the previous month.
Bottom line when the op looked at the amount TD showed in October, there were 7 months of interest at question: payed in Apr, May, Jun, Jul, Aug, Sep, and Oct. Call them what you will but those are the month/payments that matter when determining the interest the OPs ibond had earned. period.
Bottom line, the op looked at the amount TD showed in October, there were 7 months of interest at question: payed in Apr, May, Jun, Jul, Aug, Sep, and Oct. Call them what you will but those are the month/payments that matter when determining the interest the OPs ibond had earned. period.
The last 3 months of interest earned (penalty) is not reflected in your current balance.
The interest shown in your account is for 4 months (March to June) totaling 122 days. Total number of days in the first six months of ownership (which earned 3.56%) was 184.
Therefore, interest earned is calculated as: (10,000*0.0356)*122/184 = $236.04
This method is unnecessarily complicated and should be a relic of the past. To calculate the interest precisely the way TD does, you need to create a spreadsheet or use TD’s savings bond calculator, which is why I use the method in my comment above as a close approximation. I don't worry about the small difference.
If Martians read DA and watch YouTube, they'd lost on the way back.
Martians could learn that Earth rotates a bit slower, 184 days every 6 months(Humanoid me gets the calculation) and if D'egg explains how to calculate the trajectory, they will have to declare the War of the Worlds on YouTube half of the way to Jupiter.
Brightest people on the trading floor are at the Fixed Income Desk, they operate slightest margins, smallest nuances and huge volumes.
Diamond NestEgg didn't get there, none of the pundits on YouTube did. She just recites the information she reads in a way that sounds comprehensible to herself.
Bonds values are what they are published by US Treasury, no matter how we understand them(I stopped trying)
Bond Value is not based on the Interest, because it is not. It is an Investment gain based on the Value at the Redemption...reported as Interest and taxed Federally as Ordinary Income.
@Reader1 doesn't have to use any method.
@Reader1 can choose any amount since he/she is only responsible for the final amount of Tax Due when Bond is Redeemed!
How Treasury calculates the Redemption value, is a waste of time.... different number of days, composite Interest and semi-annual Compounding
How much - everyone can learn from SBC or from Treasury published and owned Redemption Tables.
That Information is updated twice a year and Values are calculated 6 months(minus one day) forward.
From there you could analyze variable rates of the return in %, variable Redemption values in $$$ and Redemption strategy.
I won't dare explaining how it works, I stopped trying it to myself some time ago...but
if you still need Diamond NestEgg's explaining...it is probably not for you.
"Reporting the interest every year
You may choose to report the interest every year. For example, you may find it advantageous to report interest every year on savings bonds in a child's name. The child may be paying taxes at a lower rate than will be true years later when the bond matures.
But you will not get a 1099-INT every year. You only get a 1099-INT at the end.
• If the savings bonds are in a TreasuryDirect account, you can see the interest earned each year in the account.
• If the savings bonds are on paper, our Savings Bond Calculator can help you figure out the interest to report.
When you get the 1099-INT at the end, it will show all the interest the bond earned over the years. For instructions on how to tell the IRS that you already reported some or all of that interest in earlier years, go to IRS Publication 550 and look for the section on U.S. Savings Bonds. "
From IRS Publication 550:
"Reporting options for cash method taxpayers.
If you use the cash method of reporting income, you can report the interest on Series EE, Series E, and Series I bonds in either of the following ways.
1. Method 1. Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. (However, see Savings bonds traded, later.)
Note. Series EE bonds issued in 1991 matured in 2021. If you have used method 1, you generally must report the interest on these bonds on your 2021 return. The last Series E bonds were issued in 1980 and matured in 2010. If you used method 1, you generally should have reported the interest on these bonds on your 2010 return.
2. Method 2. Choose to report the increase in redemption value as interest each year.
You must use the same method for all Series EE, Series E, and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.
TIP If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. To learn how, see Education Savings Bond Program, later."
I recommend that you read the full section on US Savings Bonds in IRS Publication 550. To answer your specific question, for 2022 the OP would use Method 2 above and would report the increase in redemption value for the year 2022 which would exclude the penalty months (the redemption value at any point in time is the value shown in your TD account).
https://www.treasurydirect.gov/BC/SBCPrice
