This blog has moved. Click here to go to the new blog.

Savings-Bonds-Alert: Savings Bond rate vs yield

Tuesday, March 29, 2005

Savings Bond rate vs yield

The Savings Bond Wizard shows that for an EE bond issued 09/1992, the rate is 4.00%, and the yield is 5.92%. For an I bond issued 01/2003 the rate is 4.28% and the yield is 3.51%. I don't understand why rate and yield are different, how they are computed. Why is the I bond yield less than rate and EE bond yield more than the rate? Tom's response First you have to realize that the interest rates paid by Savings Bonds can change every six months. The rate shown by the Wizard is what a bond is earning in the current six month rate period. The yield is how much it's earned, expressed as an annual interest rate, since the day you bought it. If interest rates go down over the life of a bond, as they have for your 92 EE bond, the lifetime yield will be higher than the current rate. If interest rates go up over the life of a bond, as they have for your 03 I bond, the current rate will be higher than the lifetime yield.

0 Comments:

Post a Comment