Those who have diversified their investment portfolios to include US Savings bonds have particular clauses and earnings associated with those investments. One example is the composite earnings rate where the rate of return isn’t just based on one feature, but more by the standard definitions of composite – meaning “made up of disparate or separate parts or elements.”
When the term is used in relation to US Savings Bonds, specifically the I Series, composite earnings rates are unique to the Series I US Savings Bonds. A composite earning rate is made up of two parts: a fixed rate that is constant for the life of the bond and an inflation rate that is updated every six months as your bond enters a new rate.
The fluctuations associated with composite earnings rate are directly correlated with the interest rate announced by the Feds biannually. Every May 1st and November 1st, bondholders will learn what percentage of interest they will earn for the next six months. The Consumer Pricing Index (CPI) determines the composite earnings rate. The CPI number is based on the monthly fluctuation on the changes in the prices paid by urban consumers for a representative basket of goods and services.
Not all US Savings Bonds are influenced by the CPI as not all bonds have composite earnings rates. Certain EE Bond Series only pay off a fixed rate of return and the semi-annually announcements of the inflation rate does not seriously affect the rate of return for a consumer’s investment.
When purchasing any US Savings Bond, it is important to know how your yield is going to be generated. Whether your bonds will pay a fixed rate of return or semiannually, your rate will change based on the type of bond purchased. If you purchased a bond with a composite interest rate, it is important to stay abreast and intoned with the Federal semi annual announcements.