I Bonds are one of the safest investments available, backed by the US government and protected against inflation. They received massive attention during the high-inflation years of 2022-2023, but remain a smart part of a diversified savings strategy.
Table of Contents
How I Bonds Work
I Bond rates have two components:
| Component | Current Rate | How It’s Set |
|---|---|---|
| Fixed rate | 1.20% | Set at purchase, stays forever |
| Inflation rate | 2.48% | Changes every 6 months based on CPI |
| Composite rate | 3.68% | Combined rate you actually earn |
The fixed rate is locked in at purchase and never changes. The inflation rate adjusts every 6 months (May and November) based on the Consumer Price Index.
Composite Rate Formula
Composite Rate = Fixed Rate + (2 × Semiannual Inflation Rate) + (Fixed Rate × Semiannual Inflation Rate)
I Bond Purchase Limits and Rules
| Rule | Details |
|---|---|
| Purchase limit | $10,000/person/year (electronic) + $5,000/year (paper via tax refund) |
| Where to buy | TreasuryDirect.gov (electronic), IRS tax refund (paper) |
| Minimum purchase | $25 (electronic), $50 (paper) |
| Minimum hold period | 12 months |
| Early redemption penalty | If redeemed before 5 years, lose last 3 months of interest |
| Maximum hold period | 30 years |
| Tax treatment | Federal income tax only (exempt from state/local tax) |
| Tax deferral | Can defer interest until redemption |
Maximizing I Bond Purchases
| Method | Annual Amount |
|---|---|
| Individual (electronic) | $10,000 |
| Individual (paper via tax refund) | $5,000 |
| Spouse (electronic) | $10,000 |
| Spouse (paper via tax refund) | $5,000 |
| Trust (electronic) | $10,000 |
| LLC/Business (electronic) | $10,000 |
| Maximum per couple | $30,000 (or $50,000+ with entities) |
I Bond Rate History
| Period | Composite Rate | Fixed Rate | Inflation Rate |
|---|---|---|---|
| Nov 2026 | 3.68% | 1.20% | 2.48% |
| May 2026 | 3.45% | 1.20% | 2.25% |
| Nov 2025 | 3.11% | 1.20% | 1.91% |
| May 2025 | 3.98% | 1.30% | 2.68% |
| Nov 2024 | 3.11% | 1.20% | 1.91% |
| May 2024 | 4.28% | 1.30% | 2.96% |
| Nov 2023 | 5.27% | 1.30% | 3.94% |
| May 2023 | 4.30% | 0.90% | 3.38% |
| Nov 2022 | 6.89% | 0.40% | 6.48% |
| May 2022 | 9.62% | 0.00% | 9.62% |
I Bonds vs. Other Safe Investments
| Investment | Current Rate | Risk | Liquidity | Inflation Protection | Tax Advantages |
|---|---|---|---|---|---|
| I Bonds | 3.68% | None | 12-month lock, then anytime | Yes (built in) | State tax exempt, can defer federal |
| High-yield savings | 4.0–5.0% | None | Instant | No (rate may drop) | None |
| 1-Year CD | 4.0–5.0% | None | Locked (penalty) | No | None |
| Treasury Bills (1-yr) | 4.3–4.8% | None | At maturity | No | State tax exempt |
| TIPS (Treasury) | 2.0% + inflation | Very low | Market-based | Yes | State tax exempt |
| Money Market Fund | 4.5–5.2% | Very low | 1 day | No | None |
When I Bonds Are the Best Choice
- Building an emergency fund you won’t touch for 12+ months
- Saving for a goal 1-5 years away
- Adding inflation protection to your portfolio
- Maximizing state tax savings (no state/local tax on I Bond interest)
When Other Options Are Better
- Need access within 12 months → high-yield savings
- Want the highest current rate → T-bills or money market
- Investing for 10+ years → stocks/index funds
- Need more than $10,000 of inflation protection → TIPS
Tax Strategies for I Bonds
Option 1: Defer Interest (Default)
- Pay no taxes until you redeem the bonds
- Good for: Most investors, those in high tax brackets now who expect lower brackets later
Option 2: Report Interest Annually
- Pay taxes each year on accrued interest
- Good for: Children’s accounts (using the child’s lower tax rate)
Option 3: Education Tax Exclusion
If used for qualified education expenses, interest may be completely tax-free:
- Must be at least 24 years old when bonds were purchased
- Used for qualified higher education expenses for you, spouse, or dependents
- Income limits apply (phased out at higher incomes)
How to Buy I Bonds
Electronic I Bonds (TreasuryDirect.gov)
- Create an account at TreasuryDirect.gov
- Link your bank account
- Navigate to BuyDirect → Series I
- Choose purchase amount ($25-$10,000)
- Complete purchase
Paper I Bonds (Tax Refund Only)
- File your federal tax return
- Complete IRS Form 8888
- Designate up to $5,000 of your refund for paper I Bonds
- Bonds arrive by mail in $50 denominations
I Bond Redemption Strategy
| Timeline | Action |
|---|---|
| Before 12 months | Cannot redeem |
| 12 months–5 years | Can redeem, but lose last 3 months of interest |
| After 5 years | Redeem anytime with no penalty |
| 25-30 years | Bonds stop earning interest at 30 years; redeem at that point |
Optimal timing: Redeem at the start of a month (interest is credited monthly). After 5 years, there’s no penalty, so redeem whenever you need the money.
Building an I Bond Ladder
Since you can buy $10,000/year, build a position over time:
| Year | Annual Purchase | Cumulative I Bond Holdings |
|---|---|---|
| Year 1 | $10,000 | $10,000 |
| Year 2 | $10,000 | $20,700 |
| Year 3 | $10,000 | $31,700 |
| Year 4 | $10,000 | $43,200 |
| Year 5 | $10,000 | $55,000+ |
After year 5, your oldest I Bonds can be redeemed penalty-free, giving you access to $10,000+ per year while keeping the rest invested.
Related: High-Yield Savings Accounts | CD Rates | How to Start Investing | Emergency Fund Guide
