I am thinking about purchasing my new great niece an I bond for her birthday for $100. I know the interest rate now until May is like 4.7 %. What determines the interest rate in the I bond? Does the Feds raising and lowering the interest rate have any affect on the return? This I bond I plan to purchase will be for her future education.|||the interest is in two pieces. The CPI + a fixed interest rate.
The CPI is determined each year based on the amount of inflation (rise in prices of typical goods and services). The fixed rate is determined by supply and demand in the treasury market at the time of purchase. For example, the current 4.7% may be due to a fixed 2% and a current inflation rate of 2.7%. Over the course of time, the fixed rate will stay the same, and the CPI will fluctuate. See www.treasurydirect.gov for precise information on this.
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