I‑Bonds FAQ
Should I buy I‑Bonds right now?
Look at the fixed rate, not the composite rate in the headlines. The composite rate resets with inflation for every bond ever issued, so a big number there tells you about last year's CPI, not about the bond you're buying. The fixed rate is the part you keep for 30 years. Buy when it's at or near the real yield on a TIPS of similar length, because I‑Bonds also defer federal tax and can't lose value. The buy page runs that comparison on today's numbers.
Should I cash in the I‑Bonds I already own?
Compare your bond's fixed rate to today's. Every bond bought in the 2021-2022 rush carries a 0% fixed rate, as do most issues from late 2010 through 2017. Those earn inflation and nothing more, while a new bond earns inflation plus the current fixed rate on top. Two catches. Under 5 years old, cashing out forfeits the last 3 months of interest. And you can only put $10,000 a year back in. The redeem page does the arithmetic for each purchase era.
Are I‑Bonds better than TIPS?
Neither wins across the board. TIPS usually pay a higher real yield and have no purchase limit, but you owe federal tax each year on inflation adjustments you haven't been paid yet, and selling before maturity means taking the market price. I‑Bonds owe no tax until you cash out, never fall below what you paid, and redeem at full value after 12 months, but you're capped at $10,000 per person per year. State tax is a wash: both are Treasury securities, so no state or city taxes either one.
What's the best day of the month to buy or redeem an I‑Bond?
Buying: the last few days of the month. A bond earns the whole month's interest no matter which day it's issued, so buying at month-end gets you a full month for a day or two of holding. Leave a business day or two of slack, since TreasuryDirect has to settle the transfer before the 1st and only moves money on banking days. Redeeming: the 1st. Interest posts on the 1st and your proceeds don't grow again until the next one, so waiting past it just leaves the cash idle.
How are I‑Bonds taxed?
No state or local income tax, ever. Federal tax waits until you redeem the bond or it turns 30. (You can elect to report the interest annually instead; almost nobody does.) TreasuryDirect issues a 1099-INT for the year you cash out. If the money goes to qualified higher-education expenses and your income that year is under the limit, the interest can come out federal-tax-free. TIPS work the opposite way: you pay federal tax every year on inflation adjustments you won't see in cash until maturity.
What's the difference between the fixed rate and the composite rate?
The composite rate is what a bond pays right now: its fixed rate plus an inflation rate, recalculated every six months. The fixed rate is set the month you buy and stays with that bond for 30 years. Everyone gets the same inflation component, so the fixed rate is the only thing that makes one I‑Bond worth more than another.