Understanding interest rates is crucial in today’s financial world, whether you’re saving, investing, or borrowing money. Interest rate, at its core, is the cost of borrowing money or the reward for lending it. It’s expressed as a percentage of the principal amount, on an annual basis. This percentage dictates how much extra you’ll pay back over the loan amount or how much you’ll earn on your savings or investments. In the context of savings bonds, particularly I bonds, interest rates play a key role in determining the bond’s growth and overall return. Let’s delve into how interest rates work, specifically focusing on I bonds and their unique composite rate.
Decoding the Composite Rate for I Bonds
For U.S. Treasury Series I bonds, the interest rate isn’t a fixed number throughout the life of the bond. Instead, it’s a composite rate, which is a combination of two parts: a fixed rate and an inflation rate. This unique structure is designed to protect your purchasing power, ensuring your investment keeps pace with inflation.
The current composite rate for I bonds issued from November 2024 through April 2025 is 3.11%. But how is this rate calculated? Let’s break it down:
-
Fixed Rate: This portion of the interest rate is set when you purchase the bond and remains constant for the life of the bond. For I bonds issued from November 2024 through April 2025, the fixed rate is 1.20%.
-
Inflation Rate (Semiannual): This rate changes every six months and is based on the semiannual inflation rate. For the period from November 2024 through April 2025, the semiannual inflation rate is 0.95%.
The composite rate is calculated using a specific formula that combines these two rates:
Composite rate = Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)
Let’s apply this formula to the current rates:
Composite rate = 0.0120 + (2 x 0.0095) + (0.0120 x 0.0095)
= 0.0120 + 0.0190 + 0.0001140
= 0.031114Rounding 0.031114 to four decimal places gives 0.0311, which translates to a composite rate of 3.11%. This is the annual interest rate your I bond will earn for the first six months after it’s issued.
Understanding Interest Rate Changes Over Time
While the fixed rate remains constant, the inflation rate adjusts every six months, causing the composite rate to change accordingly. It’s important to note that the interest rate for your I bond changes every six months from the issue date of your bond, not necessarily in May and November when new rates are announced for newly issued bonds.
To understand when your I bond’s interest rate changes, refer to the table below:
| If we issued your bond in | Your interest rate changes every |
|---|---|
| January | July 1 and January 1 |
| February | August 1 and February 1 |
| March | September 1 and March 1 |
| April | October 1 and April 1 |
| May | November 1 and May 1 |
| June | December 1 and June 1 |
| July | January 1 and July 1 |
| August | February 1 and August 1 |
| September | March 1 and September 1 |
| October | April 1 and October 1 |
| November | May 1 and November 1 |
| December | June 1 and December 1 |
This table clarifies that if you bought your I bond in March, for example, your interest rate will be updated every September 1st and March 1st. This semi-annual adjustment ensures that your bond’s earnings reflect current inflation trends.
The Benefit of Compounding Interest
I bonds offer the advantage of semiannually compounding interest. This means that twice a year, the interest you’ve earned in the previous six months is added to the principal value of your bond. This new, higher principal then earns interest in the subsequent six-month period. This compounding effect allows your investment to grow not just on the initial principal but also on the accumulated interest.
For instance, if you invest in an I bond, interest starts accruing from the first day of the month you purchase it. Every six months, this accrued interest is added to your bond’s principal value. This new value then becomes the base for calculating interest for the next six months, leading to exponential growth over time.
To check the current value of your I bonds, you can:
- TreasuryDirect Account: If you purchased your bonds electronically through TreasuryDirect, you can find the current value in your account.
- Savings Bond Calculator: For paper bonds, you can use the Savings Bond Calculator on the TreasuryDirect website to determine their current value.
Important Note: Keep in mind that for I bonds held for less than five years, the value displayed might not include the last three months of interest. This is because if you redeem your bond before the five-year mark, you forfeit the final three months of interest.
Historical Perspective on I Bond Interest Rates
To provide a broader context, let’s look at the historical trends of interest rates for I bonds. The rates are comprised of fixed rates and inflation rates, both of which have fluctuated over time based on economic conditions.
Fixed Rate Trends
The fixed rate component is set in May and November and applies to bonds issued in the following six months. This rate remains fixed for the bond’s entire lifespan. The table below illustrates how fixed rates have changed over the years:
| Date the fixed rate was set | Fixed rate for bonds issued in the six months after that date |
|---|---|
| November 1, 2024 | 1.20% |
| May 1, 2024 | 1.30% |
| November 1, 2023 | 1.30% |
| May 1, 2023 | 0.90% |
| November 1, 2022 | 0.40% |
| May 1, 2022 | 0.00% |
| November 1, 2021 | 0.00% |
| May 1, 2021 | 0.00% |
| November 1, 2020 | 0.00% |
| May 1, 2020 | 0.00% |
| November 1, 2019 | 0.20% |
| May 1, 2019 | 0.50% |
| November 1, 2018 | 0.50% |
| May 1, 2018 | 0.30% |
| November 1, 2017 | 0.10% |
| May 1, 2017 | 0.00% |
| November 1, 2016 | 0.00% |
| May 1, 2016 | 0.10% |
| November 1, 2015 | 0.10% |
| May 1, 2015 | 0.00% |
| November 1, 2014 | 0.00% |
| May 1, 2014 | 0.10% |
| November 1, 2013 | 0.20% |
| May 1, 2013 | 0.00% |
| November 1, 2012 | 0.00% |
| May 1, 2012 | 0.00% |
| November 1, 2011 | 0.00% |
| May 1, 2011 | 0.00% |
| November 1, 2010 | 0.00% |
| May 1, 2010 | 0.20% |
| November 1, 2009 | 0.30% |
| May 1, 2009 | 0.10% |
| November 1, 2008 | 0.70% |
| May 1, 2008 | 0.00% |
| November 1, 2007 | 1.20% |
| May 1, 2007 | 1.30% |
| November 1, 2006 | 1.40% |
| May 1, 2006 | 1.40% |
| November 1, 2005 | 1.00% |
| May 1, 2005 | 1.20% |
| November 1, 2004 | 1.00% |
| May 1, 2004 | 1.00% |
| November 1, 2003 | 1.10% |
| May 1, 2003 | 1.10% |
| November 1, 2002 | 1.60% |
| May 1, 2002 | 2.00% |
| November 1, 2001 | 2.00% |
| May 1, 2001 | 3.00% |
| November 1, 2000 | 3.40% |
| May 1, 2000 | 3.60% |
| November 1, 1999 | 3.40% |
| May 1, 1999 | 3.30% |
| November 1, 1998 | 3.30% |
| September 1, 1998 | 3.40% |
Inflation Rate Trends
The inflation rate, on the other hand, is set in May and November and applies to all outstanding I bonds for a six-month period. This rate reflects the prevailing inflation environment. Here’s a look at historical inflation rates:
| Date the inflation rate was set | Inflation rate for all I bonds issued for six months (starting in that bond’s next interest start month – see the table of months higher on this page) |
|---|---|
| November 1, 2024 | 0.95% |
| May 1, 2024 | 1.48% |
| November 1, 2023 | 1.97% |
| May 1, 2023 | 1.69% |
| November 1, 2022 | 3.24% |
| May 1, 2022 | 4.81% |
| November 1, 2021 | 3.56% |
| May 1, 2021 | 1.77% |
| November 1, 2020 | 0.84% |
| May 1, 2020 | 0.53% |
| November 1, 2019 | 1.01% |
| May 1, 2019 | 0.70% |
| November 1, 2018 | 1.16% |
| May 1, 2018 | 1.11% |
| November 1, 2017 | 1.24% |
| May 1, 2017 | 0.98% |
| November 1, 2016 | 1.38% |
| May 1, 2016 | 0.08% |
| November 1, 2015 | 0.77% |
| May 1, 2015 | -0.80% |
| November 1, 2014 | 0.74% |
| May 1, 2014 | 0.92% |
| November 1, 2013 | 0.59% |
| May 1, 2013 | 0.59% |
| November 1, 2012 | 0.88% |
| May 1, 2012 | 1.10% |
| November 1, 2011 | 1.53% |
| May 1, 2011 | 2.30% |
| November 1, 2010 | 0.37% |
| May 1, 2010 | 0.77% |
| November 1, 2009 | 1.53% |
| May 1, 2009 | -2.78% |
| November 1, 2008 | 2.46% |
| May 1, 2008 | 2.42% |
| November 1, 2007 | 1.53% |
| May 1, 2007 | 1.21% |
| November 1, 2006 | 1.55% |
| May 1, 2006 | 0.50% |
| November 1, 2005 | 2.85% |
| May 1, 2005 | 1.79% |
| November 1, 2004 | 1.33% |
| May 1, 2004 | 1.19% |
| November 1, 2003 | 0.54% |
| May 1, 2003 | 1.77% |
| November 1, 2002 | 1.23% |
| May 1, 2002 | 0.28% |
| November 1, 2001 | 1.19% |
| May 1, 2001 | 1.44% |
| November 1, 2000 | 1.52% |
| May 1, 2000 | 1.91% |
| November 1, 1999 | 1.76% |
| May 1, 1999 | 0.86% |
| November 1, 1998 | 0.86% |
| September 1, 1998 | 0.62% |
Current Composite Rate Overview
The composite rate, resulting from the combination of fixed and inflation rates, varies depending on when you purchased your I bond. The following table provides an overview of the composite rates for different periods:
| Period when you bought your I bond | Composite rate for your 6 month earning period starting November 2024 through April 2025 |
|---|---|
| From | Through |
| Nov. 2024 | Apr. 2025 |
| May 2024 | Oct. 2024 |
| Nov. 2023 | Apr. 2024 |
| May 2023 | Oct. 2023 |
| Nov. 2022 | Apr. 2023 |
| May 2022 | Oct. 2022 |
| Nov. 2021 | Apr. 2022 |
| May 2021 | Oct. 2021 |
| Nov. 2020 | Apr. 2021 |
| May 2020 | Oct. 2020 |
| Nov. 2019 | Apr. 2020 |
| May 2019 | Oct. 2019 |
| Nov. 2018 | Apr. 2019 |
| May 2018 | Oct. 2018 |
| Nov. 2017 | Apr. 2018 |
| May 2017 | Oct. 2017 |
| Nov. 2016 | Apr. 2017 |
| May 2016 | Oct. 2016 |
| Nov. 2015 | Apr. 2016 |
| May 2015 | Oct. 2015 |
| Nov. 2014 | Apr. 2015 |
| May 2014 | Oct. 2014 |
| Nov. 2013 | Apr. 2014 |
| May 2013 | Oct. 2013 |
| Nov. 2012 | Apr. 2013 |
| May 2012 | Oct. 2012 |
| Nov. 2011 | Apr. 2012 |
| May 2011 | Oct. 2011 |
| Nov. 2010 | Apr. 2011 |
| May 2010 | Oct. 2010 |
| Nov. 2009 | Apr. 2010 |
| May 2009 | Oct. 2009 |
| Nov. 2008 | Apr. 2009 |
| May 2008 | Oct. 2008 |
| Nov. 2007 | Apr. 2008 |
| May 2007 | Oct. 2007 |
| Nov. 2006 | Apr. 2007 |
| May 2006 | Oct. 2006 |
| Nov. 2005 | Apr. 2006 |
| May 2005 | Oct. 2005 |
| Nov. 2004 | Apr. 2005 |
| May 2004 | Oct. 2004 |
| Nov. 2003 | Apr. 2004 |
| May 2003 | Oct. 2003 |
| Nov. 2002 | Apr. 2003 |
| May 2002 | Oct. 2002 |
| Nov. 2001 | Apr. 2002 |
| May 2001 | Oct. 2001 |
| Nov. 2000 | Apr. 2001 |
| May 2000 | Oct. 2000 |
| Nov. 1999 | Apr. 2000 |
| May 1999 | Oct. 1999 |
| Nov. 1998 | Apr. 1999 |
| Sept. 1998 | Oct. 1998 |
In conclusion, understanding interest rates, especially the composite rate of I bonds, is essential for making informed financial decisions. I bonds offer a unique investment opportunity with rates that adjust to inflation, providing a measure of security and growth potential for your savings. By grasping the components and historical trends of I bond interest rates, you can better evaluate their role in your overall financial strategy.
