Series I Savings Bonds (I Bonds) are U.S. government savings bonds that earn a composite interest rate tied to inflation. They are one of the rare investments guaranteed to keep pace with inflation — making them an attractive option when inflation is high and for conservative savings goals like an emergency fund or near-term large purchase. You buy them directly from the U.S. Treasury, not through a broker, and they carry zero default risk.
How the I Bond Rate Works
The I Bond composite rate has two components:
- Fixed rate: Set when you purchase the bond and stays with your bond for its 30-year life. As of May 2026, the fixed rate is announced by the Treasury in May and November each year. A higher fixed rate is more valuable for long-term holders.
- Inflation rate: Adjusts every six months based on changes in the CPI-U (Consumer Price Index for All Urban Consumers). Announced in May and November.
The composite rate formula: (Fixed rate + 2 × Semiannual inflation rate + Fixed rate × Semiannual inflation rate). The composite rate cannot go below 0% — if deflation is severe enough to bring the rate to zero, you simply earn nothing rather than losing principal. Check TreasuryDirect.gov for the current composite rate before purchasing.
Purchase Limits
Each person can purchase:
- $10,000 per year in electronic I Bonds through TreasuryDirect.gov
- $5,000 per year in paper I Bonds using your federal tax refund (via IRS Form 8888)
These limits are per Social Security number. A married couple can each buy $10,000 in electronic bonds for a combined $20,000 per year, plus potentially $5,000 more each in paper bonds via tax refund. You can also purchase I Bonds as gifts for others (subject to their limits), and trusts and businesses have separate purchase limits.
Holding Period and Redemption Rules
- Minimum holding period: You cannot redeem an I Bond within the first 12 months after purchase — the money is locked up for at least one year.
- Early redemption penalty: If you redeem between 12 and 60 months (1–5 years) after purchase, you forfeit the last 3 months of interest.
- After 5 years: No penalty. You can redeem at any time with no penalty.
- Maturity: I Bonds earn interest for up to 30 years. After 30 years, the bond stops earning interest and you should redeem it.
Tax Treatment
I Bond interest is:
- Subject to federal income tax but exempt from state and local income taxes
- Taxable in the year you redeem (cash basis) unless you elect to report interest annually (accrual basis — unusual)
- Potentially tax-free if used for qualified education expenses (Education Savings Bond program). The exclusion phases out at higher income levels and requires the bond to be in the owner’s name (not the child’s)
The deferral of federal tax until redemption can be a significant advantage for long-term holders — you control when you report the income.
How to Buy I Bonds
- Go to TreasuryDirect.gov and create an account using your Social Security number, bank account information, and a driver’s license or other ID verification.
- Once your account is set up, navigate to “BuyDirect” and select “Series I” under Savings Bonds.
- Enter the purchase amount ($25 minimum) and your bank account. Funds transfer electronically.
- Electronic I Bonds are held in your TreasuryDirect account — there is no paper certificate for electronic purchases.
For paper I Bonds, file IRS Form 8888 with your tax return to direct your refund (or part of it) to paper I Bonds. The Treasury will mail the physical bonds to you.
Is an I Bond Right for You?
I Bonds are best for:
- Short- to medium-term savings you won’t need for at least 12 months (emergency fund overflow, down payment savings, wedding fund)
- Conservative investors wanting guaranteed inflation protection
- Savers in high-tax states who benefit from the state tax exemption
- People looking for a safe place to park cash when inflation is elevated
I Bonds are less compelling when the composite rate is near zero, when you need liquidity within 12 months, or when the fixed rate component is very low. Compare the current I Bond rate against high-yield savings accounts and CDs before committing.
Bottom Line
I Bonds offer a combination of inflation protection, federal backing, tax deferral, and state tax exemption that is hard to replicate elsewhere. The $10,000 annual purchase limit caps how much you can hold, but for a safe savings allocation, they are worth including. Buy through TreasuryDirect.gov, hold for at least five years to avoid the early redemption penalty, and check the current composite rate before purchasing to make sure the rate is competitive.