Key takeaways

• I bonds reset every six months with a composite rate that combines a fixed return with inflation adjustments tied to the Consumer Price Index.
• I bonds can help preserve purchasing power during periods of inflation and offer tax advantages over other saving vehicles.
• I bonds can be less liquid because funds are locked for the first 12 months; purchase limits and other rules also apply.

Series I savings bonds, better known as I Bonds, are back in focus as consumer inflation ticks up in recent months and interest rates remain elevated.

The government-backed bonds offer a composite interest rate — a combination of a fixed interest rate and a variable rate tied to the Consumer Price Index — that can protect savings during higher inflation.¹

But I bonds are more than just “inflation bonds.” They come with a unique set of rules, including a rate that resets every six months, a one-year lockup period for funds, annual purchase limits, and penalties for early redemption.²

Here are some important things to know when considering I Bonds.

What are I bonds?

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^.3

Unlike traditional bonds that pay a fixed interest rate, I bonds earn a composite rate made up of two parts:

• A fixed rate that stays the same for the life of the bond; and
• A variable inflation rate that adjusts every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U). ⁴

Because of this structure, I bonds can earn more during periods of rising inflation while still protecting your original investment. However, returns can decline when inflation cools because the variable inflation rate can reset lower every six months.⁵

I bonds are backed by the U.S. government. Your original investment does not get reduced, only the potential growth and interest rate is affected.

Read more: CPI update: Gas, groceries drive April inflation spike

How do I bonds work?

Interest on an I bond accrues monthly and is added to the bond’s value twice a year through compounding. That means you begin earning interest not only on your original investment, but also on previously earned interest.⁶

Each I bond has its own six-month rate cycle tied to the month it was purchased. While the Treasury announces new rates every May and November, your bond’s rate resets every six months from your purchase date. For example, a bond purchased in July will receive updated rates every January and the following July.⁷

I bonds continue earning interest for up to 30 years unless you redeem them sooner.

What are I bonds paying now?

The current composite rate for new I bonds purchased between May 1, 2026, and October 31, 2026, is 4.26% annualized and includes:

• A fixed rate of 0.90%;
• A six-month variable inflation rate of 1.67%.⁸

The formula for calculating a composite rate looks like this:

Composite rate = fixed rate + (2 × semiannual inflation rate) + (fixed rate × semiannual inflation rate).⁹

How to buy I bonds

To buy I bonds, you must have a valid Social Security Number (SSN) and be a U.S. citizen, or a U.S. resident, or a civilian employee of the U.S. government, regardless of location.¹⁰

You’ll need to log in or open a Treasury Direct  account and choose Buy Direct. From there, select Series I savings bonds and enter registration information (who owns them) and purchase amounts.¹¹

Individuals can buy up to $10,000 in electronic I bonds each calendar year for themselves.  Purchases can be made in amounts as small as $25.¹²

Parents or guardians can also open a Minor Linked Account through Treasury Direct and purchase I bonds on the child’s behalf. The bonds legally belong to the child, which means purchases for the child do not count against the purchaser’s annual I bond limit.¹³

For example, a family with two parents and two children could potentially buy:

• $10,000 for Parent 1
• $10,000 for Parent 2
• $10,000 for Child 1
• $10,000 for Child 2

That would allow the household to purchase up to $40,000 in I bonds in a single calendar year.

Grandparents, relatives, and others can also buy I bonds as gifts for children, but those gifts still count toward the child’s annual $10,000 limit once delivered.¹⁴

Read more: 'Giving while living' can help build generational wealth

When can you cash in I bonds?

Before buying I bonds, it’s important to understand the redemption rules and liquidity limits.

Unlike a traditional savings account, I bonds cannot be redeemed during the first 12 months after purchase. That means your money is completely locked up for one full year.¹⁵

After the first year, you can cash in your I bonds at any time. However, if you redeem them before owning them for at least five years, you will forfeit the most recent three months of interest as an early withdrawal penalty.¹⁶

Once the bond reaches the five-year mark, that penalty disappears and you can redeem the I bond without losing interest. When I bonds are redeemed through your Treasury Direct account, the proceeds are typically transferred directly to your linked bank account.¹⁷

How are I bonds taxed?

The interest earned on I bonds is exempt from state and local income taxes. Federal income tax still applies, but investors can defer paying those taxes until the bond is redeemed, transferred, or reaches final maturity after 30 years.¹⁸

That tax deferral can be especially helpful for savers who do not need immediate income from their investment because the interest can compound over time.

When the I bond is redeemed, the Treasury Department issues a Form 1099-INT showing the taxable interest earned for federal tax purposes.¹⁹

You may also be exempt from these taxes if you use the interest to pay for some higher education expenses.²⁰

I bonds vs. other savings and bond options

I bonds can play a unique role in a savings strategy because they combine government backing, inflation protection, and tax advantages. But you should also consider your goals, time horizon, and need for liquidity before buying them.

I bond features like the one-year lock-in period might not be suited for some shorter-term savings goals where cash might be needed immediately, like an emergency fund for sudden and unexpected expenses. 

Here’s how I bonds compare with some other common savings and fixed-income options.

I bonds vs. high-yield savings accounts

High-yield savings accounts offer easy access to cash, making them a strong option for emergency funds and short-term savings goals.

Since saving rates can change at any time, I bonds may offer better protection during elevated inflation, as well as tax advantages. But I bonds also come with a one-year lockup period and early withdrawal penalties if redeemed before five years.

While I bonds are backed by the U.S. government, high-yield saving accounts offered by federally insured banks and credit unions are covered by federal deposit insurance up to 250,000, should the institutions fail.²¹

I bonds vs. certificates of deposit (CDs)

Like I bonds, CDs offer predictable returns and principal protection. Standard CDs have fixed rates, while I bond rates adjust with inflation every six months.

The interest rate on a CD remains locked and constant for the entire length of your term, whether it’s six months, one year, or five years. When you cash in or redeem your CD, you receive the money you originally invested plus any interest. There can be penalties for earlier withdrawal depending on the product.²²

I bonds also have tax advantages that CDs do not, including exemption from state and local income taxes. Like other types of savings and checking accounts, CDs offered by federally insured banks and credit unions are covered by federal deposit insurance^.23

I bonds vs. Treasury bills

Treasury bills, or T-bills, are short-term government securities that mature in one year or less. With terms ranging from 4 to 52 weeks, they are highly liquid and often used for cash management or short-term savings.

Unlike I bonds, Treasury bills do not adjust for inflation. Their yields are tied more directly to market demand and Federal Reserve interest rate policy^.24

When you buy a T-bill, you pay less than its face value and then receive the bill's face value when it matures. This represents the bill's "interest" payments and is paid out at the end of the term. You won't recoup the full face value if you sell your Treasury bills before maturity.²⁵

Like I bonds, interest earned on a T-bill is subject to federal taxes but not state or local income taxes.²⁶

I bonds vs. Treasury Inflation-Protected Securities (TIPS)

Both I bonds and Treasury Inflation-Protected Securities (TIPS) are designed to help protect against inflation, but they work differently.

TIPS trade in the bond market and can fluctuate in value as interest rates change. If sold before maturity, investors could lose money.²⁷

I bonds, by contrast, do not fluctuate in market price and cannot lose principal value. They are generally simpler for individual savers who want inflation protection without market volatility.

Both TIPS and I bonds earnings are exempt from state and local taxes. But unlike I bonds, TIPS do not have annual purchase limits and can be purchased through brokerage accounts, mutual funds, or ETFs.²⁸

I bonds vs Series EE bonds

Like I bonds, Series EE bonds are U.S. government-backed savings bonds available in amounts ranging from $25 to a $10,000 annual purchase limit. But they have different goals.

While I bonds are partially tied to inflation and have rate resets every six months, Series EE bonds have only a fixed interest rate. EE bonds are designed to double your money in the first 20 years, making them attractive to buyers seeking long-term predictability^.29

Both I bonds and EE bonds have a maturity of 30 years, with similar lock-in periods for the first year and potential penalties if you cash them in within the first five years. The two types of bonds also have the same state and local tax benefits.³⁰

The table below provides a quick summary of factors when considering I bonds versus other saving vehicles.

Read more: What are liquid assets?

Are I bonds a good fit for your money?

Whether I bonds make sense for your portfolio depends largely on your timeline, liquidity needs, and goals for the money.

Because they are backed by the U.S. government and adjust with inflation, you can get a predictable return during periods of higher inflation. The current 4.26% annualized rate is the highest rate in about two years; since 2020, rates have fluctuated from 1.06% to 9.62% in response to inflation.³¹

I bonds might not be ideal for every situation. Because the money is locked up for the first 12 months and carries a three-month interest penalty if redeemed before five years, I bonds are generally not a substitute for a fully liquid emergency fund.

Ultimately, I bonds can be a useful tool within a broader savings strategy, but it’s important to compare them with alternatives. If you’re unsure whether I bonds fit your financial goals, consider discussing them and other savings options with a financial professional.