Series I Savings Bonds, also known as I Bonds or Series I Bonds, are a type of savings bond issued by the U.S. Department of the Treasury. They’re designed to be a safe, lower-risk investment option for individuals who want to help protect their savings from inflation without fear of market fluctuation.

What sets I Bonds apart from other savings bonds is their interest rate structure. They’re composed of a fixed rate and a variable rate that’s adjusted twice a year based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). 

How do I Bond interest rates work? 

The fixed rate stays the same for the entire life of the bond, while the variable rate is based on inflation and changes every six months. As of November 2024, the fixed rate for new I Bonds is 1.2% — the highest it’s been in 16 years.¹ The variable I Bonds interest rate is determined by taking the CPI from the previous six months and adjusting it for inflation. This means that the interest rate on I Bonds can increase or decrease over time, depending on the inflation rate. 

Current I Bonds rates 

The current composite rate for I Bonds bought between now and April 2025 is 3.11%. This is a drop from the 9.62% I Bonds rate in 2022, when inflation peaked. Locking in the fixed rate on I Bonds may potentially offer long-term value, especially since the variable rate is designed to protect bonds from going down in value due to inflation. They’ll always be worth at least their face value, plus any accrued interest. 

Read more: Understanding rate of return 

Tax treatment benefits of I Bonds

The interest earned on I Bonds is exempt from state and local income taxes, and it’s also deferred from federal income tax until the bond is redeemed or reaches its 30-year maturity. This means you will only have to pay taxes on the interest once you cash in the bond. You may also be exempt from these taxes if you use the interest to pay for higher education expenses.² 

Why are you hearing so much about I Bonds now? 

I Bonds remain a valuable tool for long-term savers to consider, even as inflation cools. Investors who purchase I Bonds could lock in the 1.2% fixed rate for up to 30 years which, alongside the floating rate, can help your investment outpace inflation over time.

For example, savers who bought I Bonds in 2022 at the peak 9.62% rate had a 0% fixed rate, meaning their yield as of late has dropped to 1.9%. This has led some investors to redeem older bonds, despite potentially forfeiting the last three months of interest in the process if they redeem before five years, to take advantage of the higher fixed rate now available. 

How to buy I Bonds 

You can buy up to $10,000 worth of I Bonds annually electronically through TreasuryDirect. There are annual purchase limits for I Bonds. Previously, you could purchase up to $5,000 in paper bonds using tax refunds, but the Treasury Department has discontinued paper I Bonds. 

How you can make this work for you

If you’re saving up for something over the short term, meaning five years or less, such as a new car, a kitchen overhaul, or a family vacation, you may want to check out I Bonds for a short-term investment strategy that won’t leave you sweating about losing your investment due to market fluctuations. Considering the Federal Reserve’s interest rate policy to reduce inflation, consider discussing this with your financial professional to see how the current I Bond rates compare to other short-term investment options, such as CDs and high-yield savings accounts.

For long-term savers, I Bonds purchased today could outperform inflation by at least 2.4% annually for up to 30 years. Although CDs and high-yield savings accounts might offer higher short-term yields, I Bonds can ensure steady growth over decades.

With I Bonds, you’ll get a predictable return while inflation rides high, and you won’t have to take a hit on your principal investment. Whether you’re an experienced investor or just getting started, having the right mix of investments can help you handle the ups and downs of the market while working towards your financial goals. 

Read more: Beginner’s guide to portfolio diversification

The bottom line 

So, are I Bonds a good investment? I Bonds may not be the most glamorous investment option. But they may be worth reviewing for individuals who want to protect their savings from inflation and earn a predictable rate of return.