Something's wrong at Treasury Direct

[sophie]

Something is screwy with the interest rates on my Series I bonds. Most of them are listed as 1.54% currently, and one is at 0.36%. This is correct, but the monthly interest (i.e. bond value increase) that I am seeing is only about one third of what it should be. This has been the case for a few months now - not sure exactly because I was locked out of my account for a while and only recently was able to check it.

I wrote to TD via their "Contact Us" page and we'll see what happens. Meanwhile, anyone else have this problem?? It sounds like a rather significant bug, unless I'm missing something obvious.

[Reub]

Sophie, under Obama the whole government is corrupt.

[sophie]

Not sure Obama had anything to do with it, Reub.

I double checked my calculations again this AM. I'm not wrong. I'm getting an effective averaged interest rate of 0.46%, despite the stated interest rate average of 1.25%. In other words, don't be lured into buying I Bonds assuming that you're actually going to get the interest rates that appear on the Treasury Direct website.

Of course there's nothing I can do about it except to put the word out: Treasury Direct cheats. Hopefully this same interest rate creative math is not being applied to T bills and bonds.

[Kriegsspiel]

Sophie, I have the same issues and no longer trust Treasury Direct. For instance, I have an I-Bond that I bought 3/2014 (0.2% fixed rate) that hasn't earned interest in a couple months now.

[Austen Heller]

Sophie, are you aware that each bond has it's own interest rate cycle? For instance, in May 2015, there was a period of deflation (-0.8%), so all the I-bonds with a fixed rate of 0.8% or less earned 0% interest for 6-months. However, the exact 6-months depended on when the bonds were purchased (see chart below). I am hoping this might explain what you are seeing. Also deduct the 3-month penalty if the bonds are less than 5-years old.

Kreigsspiel, I think this is your issue as well. Your 3/2014 I-bond did not enter the 0% period until Sept 2015, with the 0% payments occurring in Oct 2015-Mar 2016.....but wait!...they also deduct your 3-month interest penalty since the bond is not yet 5-years old, so really, your 0% period is from Jan 2016-June 2016. Your 3/2014 I-bond will start to pay interest again starting on July 1, 2016.

[sophie]

Ah, the 3 month penalty!!! That could be it. I'll find out next month.

[goodasgold]

And paper bonds are not included in TreasuryDirect. This was a shock the first time I logged on to TD, until I realized what was going on.

[Kriegsspiel]

Excuse me Austen, but I am trying to hate the government here and you are RUINING it!

[Austen Heller]

Excuse me Austen, but I am trying to hate the government here and you are RUINING it!

I too am distrustful and am looking for ANY reason to yank out my TD dollars and put them elsewhere, but the I-bond still seems like the best deal in town, especially if we ever get some inflation.

Ah, the 3 month penalty!!! That could be it. I'll find out next month.

You can find out right now. Go to:
https://treasurydirect.gov/BC/SBCPrice
and change the "Value as of:" field to "07/2016". The maximum denomination for I-bonds is $5k, so if you bought $10k, just double the final number.
I have always found this online calculator to match the real TD values perfectly.
You can even find the value all the way out to 11/2016, but no further (since they don't yet know what the November inflation component will be).

[barrett]

I'll second what Austen Heller is saying about that calculator. I've used it to keep track of the current value of my bonds for years now. When cashing them in, the values match exactly with those shown on the calculator. And I haven't noticed anything fishy. To expand on what AH is saying, after the new rate is announced on 5/1 or 11/1, you can get the value of your bonds for the next six months just by plugging in a different date.

Sophie, please let us know if you still think something doesn't smell right.

[MachineGhost]

What's wrong with using the Savings Bond Wizard??? I've never had any issues with it.

[sophie]

I played with the calculator. Assuming that the value of the bond in June is the amount from which interest should be calculated (as it's been stable for the past 6 months, with 0% interest), the July payment translates to an annual rate of 1.35%, assuming no compounding.

That's better, but still not the 1.54% that it's supposed to be. So I'd say it's partly the 3 month lag in a bond that is less than 5 years old, but also that there's some shenanigans with the interest rate. Either there is an outright discount being applied, or amounts are being rounded down e.g. to the nearest 10 cents.

[Austen Heller]

Hi Sophie,
I have run some numbers to help you solve this issue.
I assume that your bond has the 0% fixed rate, since you keep referring to the 1.54% inflation component. My calculations will be based on your 0% fixed rate bond.

To calculate the bond values, keep in mind that:
1) Interest is compounded semi-annually, meaning the interest accrues only on the bond value for the first 6 months, then it accrues on the bond value plus the accrued interest starting in months 7, 13, 19, 25, etc...
2) Bonds less than 5 years old have the 3 months interest penalty.
3) TD seems to be rounding all of their value to the nearest dollar.

I this first example, I will use a $5000 I-bond purchased in Jan-2015, which has the 0% fixed rate. Compare my calculated final value to the TD value:



In this next example, I will use a $5000 I-Bond puchased in May-2008, which also has the 0% fixed rate. This example is even easier to understand, since the bond is greater than 5-years old, there is no interest penalty:



Based on these calculations, I believe there is nothing wrong at Treasury Direct.
I hope this helps.