In very low interest rate environments -- such as that which started in the financial crisis of 2008 and continued through early 2014 -- safe, short-term investments earn very low yields. The U.S. Treasury has sold some Series I savings bonds with zero percent base yields. However, the yield on these inflation indexed bonds is a two-part story and any I savings bond should be earning a positive yield.
Two Components to Series I Bond Interest
The current yield or interest rate on a series I bond consists of the total of a fixed rate and inflation rate. The fixed rate will not change for the life of the savings bond. The Treasury declares the current value of this rate for new I bonds every six months, in May and November. The inflation factor rate is added to the fixed rate to determine the current yield that your I bonds are earning. The inflation rate also can change twice a year -- again in May and November.
Possible Zero Percent Base Rate
The fixed-rate portion will typically be lower than the rates on most other comparably safe investments. The fixed portion of I bond yields has ranged from a high of 3.6 percent on bonds purchased in 2000 to a low of zero percent. In November 2013, the Treasury set the rate for new I bonds at 0.20 percent. Before that date, the rate on these bonds had been stuck at zero since November of 2010. Once a series I bond is purchased, its fixed rate remains fixed forever -- or until the bond fully matures 30 years after it was bought.
What Your Bonds Are Earning Now
The interest rate your I bonds currently earn changes every six months when the Treasury adjusts the inflation factor. For example, from November 2012 through April 2013, the semi-annual inflation factor used by the Treasury was 0.88 percent. This means your zero percent I bond earned an interest rate of 1.76 percent during that six month period. In May 2013, the inflation factor changed to 0.59 percent and the same bond earned 1.18 percent. A bond with a 1.0 percent fixed rate earned 2.76 and 2.18 percent during the two six-month time frames. The U.S. Treasury publishes a semi-annual inflation rate, which must be doubled to get an annual interest rate and applied monthly to your bond interest earnings.
Finding Savings Bond Values
With the interest rate changing up to twice a year, it can be a challenge to keep up with your series I bond values. TreasuryDirect.gov offers both downloadable savings bond tracking software and an online value calculator. These let you update your bond values every month when interest is credited. To show that zero percent bonds still earn interest, the calculator shows that a $100 I bond purchased in November 2010 when the fixed rate first went to zero was worth $106.96 in February 2014.
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