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I Bond Interest Confusion (From The Oblivious Investor)

cumulus
  |     |   1,266 posts since 2010

“I purchased $10K worth of I-Bonds for the first time in 2022, specifically on July 1st, when the annualized interest rate was 9.62%. Funds left my bank account on that same day, July 1st. Fast forward to mid-January; using straight-line logic, I’m expecting to see $481 posted into the account, perhaps a few bucks less, but only associated with timing issues. I didn’t expect to see only $236 posted (???) Could not work the math, any which way.

Called the Treasury Department, waited almost two hours on hold before talking to a human being. The Rep was fabulous to deal with – polite, professional, and knowledgeable – but the two hours on hold was brutal. He assured me that I HAD earned the full interest, but shared with me that Treasury does not actually post the interest accrued into the account, even if only for viewing purposes, due to the ‘3 month penalty’ rule for holding the security for less than 5 years. According to the Rep, this is on a rolling calendar basis and the most current 3 months of interest will NEVER show in the account, until the ‘held for 5 years’ criteria is met. The owner will never see the full interest accrual until year 5.”

https://obliviousinvestor.com/investing-blog-roundup-i-bond-interest-confusion/

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6


betaguy
  |     |   181 posts since 2022
here's some math
https://www.depositaccounts.com/community/ask/49607-ibond-paying.html
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2
highly_intrestd
  |     |   23 posts since 2022
The way it works, from my understanding, is that TD automatically takes out the 3 month penalty amount from your total so you don't have to figure out that amount when you are able to withdraw the funds at a minimum of 1 year of purchase. That's why the first three months your account shows no interest accrued. The interest of $236 is for October-Dec 2022. So this means, if you were able to take out the funds (if it's been at least 12 months hypothetically) you would receive the entire interest amount shown of $236. Hope this helps.
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2
Choice
  |     |   937 posts since 2020
And don't forget to look at the TD News page where those in/from stated disaster areas can apply for relief from the normal 12 month holding period.  And once this is validated as being true by Jeff...
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1
JeffinEasternFL
  |     |   744 posts since 2020
That is TRUE!
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1
w00d00w
  |     |   360 posts since 2012
waited almost two hours on hold before talking to a human being

that's quite discouraging, and an alternative way of asking questions also limited according to the site:

Due to heavy volume, we are temporarily limiting communication by e-mail. For us to respond to your e-mail, it must concern a pending case and it must state your case number in the subject line of your e-mail.
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Choice
  |     |   937 posts since 2020
The website on sending emails is nothing less than a fraud…perpetrated over several months…if they were “busy” the website would have been corrected months ago! Absolutely a disgrace AND no management at TD and Treasury!
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CuriousDave
  |     |   233 posts since 2018
TD has a an acute staff shortage that has been ongoing ever since the popularity of I Bonds soared in 2021. Unlike commercial banks and brokers, the Treasury cannot increase its payroll without Congress appropriating more dollars via the federal budget.
Another example of this problem is the delay in processing conversions from legacy (paper) Savings Bonds to to electronic. In November I mailed my paper bonds together with the official TD manifest form to their Minneapolis address via Certified Mail, Return Receipt Requested. The USPS records show they received the envelope on November 28, but as of today they have not yet even begun to process the bonds. After a 90 minute phone wait, their CSR, also very courteous, asked that I revisit my electronic account at the end of this week and to call back if the status of the conversion process still shows nothing. Savers wishing to convert should know to allow more than 2 months before the TD conversion process even begins. Meantime, these bonds will be illiquid until the process is complete, and TD could not say when that would be.
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glasses
  |     |   21 posts since 2019
There are YouTube videos by Diamond Nest Egg that will explain exactly how I bonds work, and many of your questions can be answered by watching them for a few minutes instead of waiting for someone to pick up the phone at Treasury.
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2
md2121
  |     |   9 posts since 2022
Code of Federal regulations

§ 359.16 When does interest accrue on Series I savings bonds?
(a) Interest, if any, accrues on the first day of each month; that is, we add the interest earned on a bond during any given month to its value at the beginning of the following month.

So July interest was added at beginning of Aug; Aug in Sept; Sept in Oct. The 3 month penalty was applied for months Aug, Sept and Oct. So your acct reported no interest. The first time you will see an actual number in your acct was Nov. This amt should be the July interest, etc.

If you cash in the bond in less than 5 years, you lose the last 3 months of interest.

For example: jumping ahead to let say you want to cash out at beginning of month 19 of holding: month 15 interest gets reported in 16, 16 in 17, 17, in 18. If you cash out in month 19, you would lose interest earned for months 15, 16, 17. You would get nothing for month 18
Correction: my bad, if you cash out anytime in month 18 ( not 19), you would get nothing for month 18.
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