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by metaphor 1351 days ago
> The current rate of 9.62% is the lowest it's ever been, and its never changed drastically.

Recommend doing the math yourself as a sanity check using the composite rate formula in conjunction with historical fixed and semiannual inflation rate tables. The implication is that either the composite rate formula or the historical composite rate table is in gross error, where the latter is much more likely given a naive understanding of what the instrument's intent is.
1 comments
snoopy_telex 1348 days ago
Can you explain where you think the math error is on https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds... under the “ An example” section?
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metaphor 1344 days ago
The suspected error wasn't in the An example section...I knew there was an error somewhere, but weighted this more probable to be correct given the effort put into clearly explaining the method in step-by-step manner.

In my previous remark, turns out that the root of the error was in too quickly and incorrectly concluding (admittedly having never purchased these bonds before and only learning of them this year as we went into a bear market) that both the fixed and inflation rate components were subject to change every six months.

It wasn't until I saw your follow-up today and attempted to revisit details without bias that I noticed this linked chart[1] which made it immediately clear what critical bit of conditional detail I had missed, that is, the fixed rate component is determined at the time of initial bond purchase and persists unchanged for the life of the instrument...whoops!

To be fair, my original remark was in response to your assertion that "the current rate of 9.62% is the lowest it's ever been, and its never changed drastically." Even with my now corrected understanding, this assertion still doesn't stand in my mind given the linked table demonstrates that the prevailing 9.62% composite rate approaches historically high levels independent of original purchase date, and although variable returns ranging from 0% to 10+% depending on issue date is agreeably not drastic to someone as young as me, it's nevertheless pretty subjective, e.g. if you bought between 05/20-10/20, you'd have seen variable APY ranging from 1.06% to 9.62%, which is objectively pretty volatile.

[1] https://www.treasurydirect.gov/files/savings-bonds/i-bond-ra...

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