Why I bonds?
Because they're the only thing the US Treasury sells that promises to beat inflation by a fixed margin, with no price risk, and you can buy them in two minutes. Here is what they pay now, what they'll probably pay next, and whether to buy now or wait.
How the rate works
An I bond's rate has two parts. A fixed rate, set when you buy and kept for the bond's whole 30-year life. And an inflation rate, reset every May 1 and November 1 from the change in CPI-U over the prior six months, which every I bond gets regardless of when it was bought. Treasury combines them like this:
Your own bond's rate changes on its own six-month anniversary, not on May 1 and November 1. A bond bought in August picks up each new inflation rate in February and August.
What's coming next
Buy now or wait?
The rules, in one screen
- Limit: $10,000 of electronic I bonds per person per calendar year through TreasuryDirect. (The extra $5,000 in paper bonds via tax refund ended in 2025.)
- Lock-up: you cannot redeem for 12 months. No exceptions short of a declared disaster area.
- Penalty: redeem before 5 years and you forfeit the last 3 months of interest. After 5 years, none.
- Maturity: 30 years. Interest compounds semiannually and is credited monthly.
- Timing trick: a bond bought on the last day of a month earns interest for the whole month. Buy late in the month, redeem early in a month.
- Taxes: federal only, no state or local tax. You can defer federal tax until redemption or maturity. Interest may be tax-free if used for qualified education expenses, subject to income limits.
- Floor: the composite rate can never go below zero, even in deflation. Your bond never loses value.
- Gifts: you can buy bonds as gifts for others in TreasuryDirect, which count against the recipient's limit in the year they're delivered.
Against the alternatives
T-bills and TIPS are also state-tax-exempt, so the comparison is like for like. The I bond's edge is the zero floor and no price risk; its cost is the one-year lock and the annual limit.
What $10,000 becomes
Assumes today's composite rate holds, which it won't, since the inflation part resets every six months. Treat it as a feel for the mechanics, not a forecast.
Fixed rate history
The fixed rate is the part that matters most if you hold for years. It was zero for most of the 2010s and again through 2022.
Table view
Inflation rate history
Semiannual, not annualized. Doubling gives the rough annual figure. It has gone negative twice.