Q:

How are U.S. savings bonds compounded?

A:

Quick Answer

Interest on U.S. savings bonds is compounded semi-annually. Cashing out the savings bond before a defined time period relinquishes the interest earned, according to Kiplinger.

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How are U.S. savings bonds compounded?
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Full Answer

There are three types of U.S. savings bonds, I bonds, EE bonds and H bonds, and the interest terms vary with each type. EE Bonds issued after May 2005 have a fixed interest rate for the 30-year life of the bond. Interest rates are determined on current market rates and interest is added to the bond every month until the bond is cashed out, explains the U.S. Department of the Treasury.

Rates for EE Bonds are set on May 1 and Nov. 1, notes Kiplinger. EE Bonds issued from May 1997 to April 2005 have a variable interest rate, states the U.S. Department of the Treasury. I Bonds issued in the last quarter of 2014 and first quarter of 2015 have a composite interest rate of 1.48%. These bonds earn interest every month on the first day of the month from the issue date. The interest on these bonds compounds twice a year. The interest rate for I Bonds is based on a fixed rate and an inflation rate. The fixed rate is determined at the time of purchase; however, the inflation rate is determined every six months based on the Consumer Price Index. Since 2004, HH bonds have not been issued.

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