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I Bonds Explained: Inflation-Protected Savings for Investors

I bonds are U.S. bonds with interest rates that adjust every six months to protect purchasing power from inflation.

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NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.

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Alana Benson is an editor who joined NerdWallet in 2019. Historically she has covered a wide variety of investing topics including stocks, socially responsible investing, cryptocurrency, mutual funds, HSAs and financial advice. She is also a frequent contributor to NerdWallet's "Smart Money" podcast. Alana has appeared on FOX Houston and the "PennyWise" podcast and has been quoted in MarketWatch and The Sun. Before joining NerdWallet, she wrote two books on identity theft and several young adult nonfiction titles. Her work has been featured in The New York Times, The Washington Post, The Associated Press, MSN, Yahoo Finance and MarketWatch.

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What are I bonds?

I bonds are a type of savings bond designed to protect your investment from inflation. An I bond's rate combines two different rates: a fixed interest rate and an inflation rate. The fixed interest rate remains the same throughout the bond's life. The Bureau of the Fiscal Service announces the inflation rate twice a year in May and November based on changes in the Consumer Price Index for All Urban Consumers (CPI-U)

Combining an I bond's fixed rate and inflation rate creates its composite rate, or the interest rate an I bond will earn. I bonds are offering a composite rate of 4.03% until April 30, 2026

How I bonds work

As its name suggests, inflation heavily affects an I bond. As inflation changes, the inflation rate adjusts to offset those changes to help protect your money's purchasing power.

You must hold your bond for at least a year before you can cash it in

There are interest rate penalties for cashing in before five years.

» MORE: Track the value of a dollar over time with our inflation calculator

Brokerage firms

on Charles Schwab's website

on E*TRADE's website

on Vanguard's website

on Fidelity's website

I bonds vs. EE bonds

The U.S. Treasury issues two types of savings bonds: I bonds and EE bonds

The minimum purchase for either bond is $25.

Both I and EE bonds earn monthly interest that compounds semi-annually for up to 30 years.

They both can be sold 12 months after purchase and ultimately mature after 20 years. However, if sold prior to the five-year mark, I and EE lose three months’ worth of interest.

The main difference between I and EE bonds is their interest rate. Unlike the I bond rate, which adjusts with the Consumer Price Index to protect you from inflation, EE bonds offer a fixed rate of interest that promises to double the value of the bond if held for 20 years

Whether you’d prefer to invest in an I or EE savings bond ultimately comes down to your beliefs about how inflation and interest rates will move in the future. Here’s a summary of the similarities and differences.

Savings Bond

Series I

Series EE

Minimum purchase

$25

$25

Interest rate calculation

Adjusts with the Consumer Price Index.

The bond will double in value by year 20.

Current interest rate

4.03%

2.50%

Years to maturity

30

20

Maximum purchase

$15,000 per year (paper and electronic)

$10,000 per year

State and local taxes owed

None

None

Federal taxes

Interest earned is subject to federal income taxes.

Interest earned is subject to federal income taxes.

Are I bonds a good investment?

Whether I bonds are a good choice for you depends on your financial goals and timeline. I bonds can be a safe, immediate-term savings vehicle, especially in inflationary times.

I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax exemptions and federal tax exemptions when used to fund educational expenses.

Remember, there are penalties for withdrawing the money too soon, and interest rates are adjusted every six months.

How much can you make with I bonds?

I bonds are complicated, and even though you earn a guaranteed rate for six months at a time, there's still quite a bit of calculating to arrive at your guaranteed return.

For example, if you bought $10,000 worth of electronic I bonds in May 2025 (the maximum amount of electronic I bonds you can buy in one year). Your fixed rate would have been 1.10%, and your annual inflation rate would have been 2.86% (or a semi-annual inflation rate of 1.43%). Your composite rate of 3.98% is calculated as follows:

[Fixed rate + (2x semi-annual inflation rate) + (fixed rate x semi-annual inflation rate)] = composite rate

Or, in real numbers:

[0.0110 + (2 x 0.0143) + (0.0110 x 0.0143)] = 0.0398

This composite rate of 3.98% applied to $10,000 in I bonds would earn $199 in interest over the next six months (not $398, that's because it's an annualized rate) — but you cannot cash in your bond until you've held it for a year.

So why even mention the six-month take? Because your rate is only guaranteed for six months. After that, the rate can go up or down.

If the interest rate of TreasuryDirect Series I Savings Bond remained the same for the second six-month period. Add the first six months of interest ($199) to your original investment of $10,000 as your new principal. You would earn the TreasuryDirect Series I Savings Bond interest rate on that new number, or $10,199, for the next six months. That will result in an additional $203 in interest for your second six-month period and a total of about $402 ($199 + $203) in interest total for a one-year period.

At this point, you'd be able to exit the bond agreement. The problem is that if you cash in your bond before you've held it for five years, you lose the last three months of interest you earned.

Interest rates probably will change over time. If you kept your $10,000 bond for 30 years, you wouldn't lose any interest to penalties, but there is no guarantee your interest rate would stay the same. This can make it difficult to know exactly how much you can make investing in I bonds over a long period — though that is true for most investments.

» MORE: This savings bond calculator compares returns on I bonds

I bonds and taxes

How I bonds are taxed

Like other investments, the interest you earn from I bonds is subject to taxes. These taxes include federal income tax (but not state or local income tax) and any federal estate, gift, and excise taxes, plus any state-level estate or inheritance taxes

When it comes to reporting your interest, you have two options:

You can put off reporting the interest until the year you actually get the interest.

You can report the interest every year even though you're not receiving the interest at that point.

I bond tax benefits

An education tax exclusion can help you exclude all or part of your I bond interest from your gross income if you meet several conditions:

You cash your I bonds the same tax year you claim the exclusion.

You paid for qualified higher education expenses that same tax year for yourself, your spouse or your dependents.

Your filing status is not married filing separately.

Your modified adjusted gross income was less than s $114,500 if single or $179,250 if married filing jointly in 2025

You were 24 or older before your savings bonds were issued.

Are I bonds low risk?

I bonds are backed by the U.S. government, and you have the added bonus of protecting your cash's purchasing power.

If you're approaching a financial goal within one to five years — such as college, a wedding, surgery or retirement — and are worried about the effects of inflation, I bonds could be something to consider. It's generally a good idea to shift your investment portfolio toward less risky investments as you get closer to your goal. You may not want to risk your hard-earned money when you're close to needing it.

If you're considering how I bonds could affect your portfolio, it may be wise to speak with a financial advisor.

» MORE: How to choose a financial advisor

Should you buy I bonds?

"I bonds are a good place to park some cash that you will need in the intermediate term (one to five years). For example, placing cash in I bonds that you will use for a down payment in a couple of years makes a lot of sense," said Kenneth Chavis, a certified financial planner and senior wealth advisor at Versant Capital Management in Phoenix, Arizona, in an email interview.

If you're investing for a long time frame, on the other hand, you might want most of your portfolio allocated toward stocks instead. Buying and holding stocks or stock funds is one proven strategy for growing your money long-term.

Keep in mind, I bonds may not be as convenient to buy and manage as other securities. While many investors turn to bond exchange-traded funds (ETFs) for quick and easy diversification, I bonds are only bought and sold through the U.S. government via TreasuryDirect, not on secondary markets through brokers.

» MORE: How bond ladders work

Earn 3.71% APY by investing in U.S. Treasury Bills*

How to buy I bonds

1. Pick which types of I bonds you want to buy

There are two types of I bonds, paper and electronic. Paper I bonds can only be purchased by mail when filing a federal income tax return. This alone can make it difficult to purchase them. Electronic I bonds can be purchased online by creating an account on the TreasuryDirect website

2. Decide how much you want to invest in I bonds

Paper I bonds have a minimum purchase amount of $50 and a maximum of $5,000 per calendar year. You can buy them in increments of $50, $100, $200, $500 and $1,000. Electronic I bonds have a minimum purchase amount of $25 and a maximum of $10,000 each calendar year. You can buy them in any amount up to $10,000. If you buy the maximum amount of paper and electronic I bonds, you can buy up to $15,000 worth of I bonds each year.

3. Figure out how long to keep your I bonds

If you sell an I bond before you've held it for 12 months, you'll receive no interest. If you sell a bond before you've held it for five years, you may lose the last three months' worth of interest. If you hold the bond for five years or more, you won't lose any interest. I bonds can earn interest for 30 years unless you cash them out before then.

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