How I‑Bonds work

An I‑Bond is a savings bond sold by the U.S. Treasury. It earns interest for up to 30 years, can't be traded or sold to anyone else, and never drops in value. You buy it, it grows, you cash it in when you want the money.

You buy them through a TreasuryDirect account, starting at $25. (Paper I‑Bonds still exist in people's drawers, but new ones are electronic.)

The "I" is for inflation. Most of what the bond pays is a rate that rises and falls with the cost of living, which is the whole point of the thing: your savings can't quietly fall behind prices.

Every I‑Bond earns two rates stacked on top of each other. The number you see in the news is the total.

The fixed rate is set the month your bond is issued and never changes again. Buy a bond at 1.20% and it still has a 1.20% fixed rate in 2055. Treasury picks a new one every May 1 and November 1, and publishes no formula for how.

The inflation rate tracks how fast prices are rising, and resets every six months. Here's the part that matters: every I‑Bond in existence gets the same inflation rate at the same time, whether you bought it last month or in 1998.

So when a headline says I‑Bonds pay 5%, most of that is the half everyone gets, and it will be a different number in six months. The fixed rate is the part that's yours to keep, and the only part worth comparing between two bonds. Both are charted here, back to 2003.

Treasury's exact formula is fixed + (2 × semiannual inflation) + (fixed × semiannual inflation), and the result can't go below 0%, so falling prices can't eat into your balance.

Treasury announces rates on May 1 and November 1. Almost nobody's bond changes rate on those days.

Your bond runs on its own six-month clock, counted from the month you bought it. Buy in March and your rate changes every March 1 and September 1. Buy in July and it's every July 1 and January 1. Only May and November bonds happen to line up with the announcements.

That four-month gap is why a rate announcement is never a reason to panic about a bond you already own, and why "the current I‑Bond rate" is a slippery phrase. Each of our per-month pages follows one issue month's real schedule.

Three dates matter, and they're the same for every bond.

The first 12 months, you can't touch it. No exceptions, and nobody to sell it to. Don't put money here that you might need this year.

Before five years, cashing out costs the last three months of interest. That stings at 18 months and barely registers at four years. At five years it's gone for good.

At 30 years it stops earning and just sits there. The first I‑Bonds were issued in September 1998, so the oldest go quiet in 2028.

You don't have to need the money to cash out. After 12 months, a big enough move in rates can make redeeming the right call on its own, which is what the redeem page works out.

Interest lands on the 1st and doesn't move again until the next 1st. So cash out on the 1st, and buy near the end of a month to collect a full month for a couple of days' wait.

$10,000 a year, per Social Security number. That single rule shapes every other decision on this site.

A married couple can do $20,000 between two accounts. A trust or a business with its own EIN counts separately and gets its own $10,000. And since the cap resets on January 1 rather than running 12 months from your last purchase, buying in late December and again in early January puts $20,000 to work inside a week.

There's no limit on how much you can own, only on how much you can buy per year. Which has a catch people miss: the cap counts every purchase, no matter where the money came from. Cashing out $10,000 of old bonds doesn't give you room to buy $10,000 of new ones. If you've already used the year's cap, the money sits until January.

You can also buy bonds for someone else and deliver them to their TreasuryDirect account. Those rules get involved; Treasury's gift page is the place to read them.

No state or local income tax, in any state. I‑Bonds are federal debt and states don't get to tax it.

You do owe federal tax on the interest, but not until you cash out or the bond turns 30. Thirty years of interest can land on a single return. (You're allowed to report it every year instead; nearly nobody does, because waiting lets the untaxed money keep compounding.)

If you spend the proceeds on college costs and your income that year is under the limit, the interest can come out federal-tax-free. The rules are narrow, so read them before you count on it. More on all of this, including how it compares to the yearly tax bill on TIPS, is in the FAQ.

TIPS are the real comparison, and what this site is built to run. They're also inflation-linked Treasury securities, but they trade on a market, have no purchase cap, and usually pay a better real rate. In exchange you owe tax every year on inflation gains you haven't been paid in cash, and getting out early means selling at whatever the market offers. Which one wins depends on today's numbers, and that's what the buy page works out.

Savings accounts and CDs pay a flat rate. If inflation runs hotter than anyone expected, they lose ground and an I‑Bond doesn't. If it comes in cool, the reverse. They also have no cap and no 12-month lock, which makes them the better place for money you might actually need.

I‑Bonds are good at one specific job: up to $10,000 a year that you're confident you won't touch for at least a year, and want protected from inflation.