What are Series I bonds?

Series I bonds are savings vehicles issued by the U.S. government. Similar to a Treasury bill, you are loaning money to the government and earning interest in return. 

However, what makes I bonds unique is they earn a blend of both fixed-rate and variable-rate interest. The fixed rate is set when you buy your I bond and lasts for the life of your bond. Currently the fixed rate for I bonds is 1.10%. 

The key feature of Series I bonds is the inflation protection they offer. When inflation is high, your variable-rate and in turn your overall bond interest rate increases, ensuring that the actual purchasing power of your savings is secure.

Series I bonds are also similar to savings accounts and certificates of deposit (CDs) in that the value of your investment will never decline. That safety, combined with inflation protection, can make them a valuable part of your savings plan.

“I like [I bonds] for medium-term goals, where maybe you’re planning on buying a house or putting money towards college education in a few years,” says Sara Stanich CFP®, CDFA, CEPA, founder of Cultivating Wealth in Montauk, NY. “It’s safe and it has a good rate of return, better than what you can get in a savings account.” 

How do Series I savings bonds work?

The interest rate paid by Series I bonds has two components: a fixed rate and an inflation rate.

The fixed rate remains the same for the life of the bond. It is set every six months on May 1 and again on November 1 and applies to all Series I bonds purchased within those six months. At time of publication, the fixed rate is set at 1.10%.

The inflation rate varies over the life of the bond. It resets every six months, also on May 1 and November 1, based on the Consumer Price Index for All Urban Consumers, meaning that it increases when inflation is high and decreases when inflation is low. 

Over the past 25 years, the composite rate at issue has ranged from 0% in 2015 to a high of 9.62% from May 2022 to October 2022.

Your composite rate will vary over the life of your Series I savings bond as the inflation rate adjusts, but it will never drop below 0%. And the higher inflation gets, the more you will earn.

The interest you earn on Series I bonds is free from state and local taxes, but it is subject to federal income tax as well as estate, gift, and inheritance taxes. If you use your proceeds on qualified higher education expenses in the same year you redeem your bond, the interest can also be excluded from your federal income tax return.

“If you’re in a high income bracket and you’ve been able to sock away ten thousand a year for your child’s education, being able to redeem all of that interest tax-free is huge,” says Brennan Zizzi CFP®, an investment advisor with Zizzi Investments in Mechanicsburg, Pennsylvania. “And the other nice thing there is that they add flexibility. So if you don’t need it all for education, it’s not going to waste.”

With Series I bonds, you can choose how you pay taxes. You can either report the interest earned each year and pay taxes as you go, or you can defer taxes until the year in which you redeem the bond. You can even change which method you’re using as you go along, though you’ll need to complete IRS Form 3115 if you’re switching from reporting every year to deferring until redemption.

When do Series I bonds pay interest?

Similar to CDs, Series I bonds require you to keep your money invested for an extended period of time to get the maximum benefit. All Series I bonds have a 30-year maturity and are zero coupon bonds, meaning interest isn’t paid until you redeem the bond. Instead, the interest you earn is added to the value of the bond, which then earns more interest moving forward.

Interest is earned monthly, but compounding is done semi-annually. This means that every six months, the interest earned is added to the value of your bond. From that point forward, interest is earned on that new, higher bond value.

You cannot redeem an I bond sooner than 12 months after purchase, and there is a penalty of three months’ worth of interest if you redeem it before five years have passed.

“When inflation is high and other rates are low, even if you redeem it before five years and lose three months, you’re still getting a great return,” says Zizzi.

When you redeem the bond, whether at maturity or earlier, you collect both your initial investment and all of the interest earned.

What do I do when my Series I bond matures?

Series I bonds earn interest for up to 30 years, which includes an initial 20-year maturity period, followed by an automatic 10-year extended maturity if the bond hasn’t already been redeemed.

With digital Series I bonds (see below for more detail), the redemption value is automatically deposited into your account with TreasuryDirect at maturity.

With paper bonds, you have to redeem the bond manually. You can do this through TreasuryDirect by completing FS Form 1522, or you can check with your local bank to see if they can redeem the bond for you.

How to buy Series I bonds

As of Jan. 1, 2025, you can only purchase Series I bonds digitally—through the TreasuryDirect website.  This also allows you to track exactly how much your bonds are worth at any given time. Here’s how to buy a Series I bond through the website.

1. Open a TreasuryDirect.gov Account

Go to https://www.treasurydirect.gov and click “Log In” if you already have an account, or “Open a New Account” if this is your first time registering.

To open a new account, you’ll need the following:

1. A taxpayer identification number (this could be a Social Security number (SSN) or an electronic identification number (EIN).
2. An address of record within the U.S.
3. A checking or savings account and the routing number
4. An email address
5. Personal information for the person or company for whom you are registering the account, such as name, birthdate, etc.

2. Choose BuyDirect

Once you have your account, you can log in and choose “BuyDirect”. Then you can confirm that you’re buying Series I bonds and click “Submit”.

3. Complete the Rest of the Application

The last step is confirming the value of the bond you’d like to purchase and how it will be registered.

For digital Series I bonds purchased through TreasuryDirect, you can purchase any amount from $25 to $10,000 per year, per tax identification number. If you are gifting the bond to someone else, you have to hold the bond in your account for a minimum of five days before transferring it to the recipient’s TreasuryDirect account. 

You can register the bond under a single owner, an owner with a beneficiary, two co-owners or a business entity.

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The takeaway

If you’re looking to inflation-proof your savings, while earning interest at a rate above what you’d find on traditional savings or CDs, Series I bonds can be a smart part of your strategy. The investment comes with some tax advantages and, since they are backed by the U.S. Treasury and adjust biannually for inflation, they can provide a safe harbor during uncertain economic times. 

However, over time, a balanced portfolio of stocks and bonds is likely to produce greater returns, so it’s best not to put all of your savings into I bonds, even during periods of high inflation.

Frequently asked questions about Series I bonds

Are Series I savings bonds taxable?

Interest from Series I bonds is subject to federal taxes, but not state or local taxes. You can avoid federal taxes as well if the proceeds are used for qualified education expenses in the year in which you redeem the bond.

Are Series I bonds a good investment?

Series I bonds can be a great way to earn a higher interest rate than traditional savings accounts and CDs over short to medium periods, while still maintaining the same level of safety. Over long periods, you are likely to earn higher returns from a diversified portfolio of stocks and bonds.

How long do you have to hold Series I bonds?