A Series I bond is a savings bond issued by the U.S. Treasury that protects you from inflation by adjusting its interest rate every six months

Series I bonds earn interest in two parts: a fixed rate that never changes, and a variable rate that moves with inflation. The Treasury announces the new variable rate on May 1 and November 1 each year, and your bond's total rate updates on those dates. You buy them directly from TreasuryDirect.gov for their face value—$25 to $10,000 per purchase—and they mature in 30 years, though you can cash them out earlier if you need the money.

The main reason people buy Series I bonds is that when inflation rises, your interest rate rises with it. If inflation drops, your rate drops too, but the fixed portion of your rate never goes below zero. This makes them useful if you're worried about your savings losing purchasing power over time, or if you want a safe place to park money you won't need for at least one year.

Key Takeaways

  • Series I bonds earn a fixed rate plus an inflation-adjusted variable rate that changes every six months on May 1 and November 1.
  • You must hold a Series I bond for at least one year before you can cash it out, and you lose the last three months of interest if you sell it within five years.
  • You can buy up to $10,000 per calendar year through TreasuryDirect, plus an additional $5,000 using your tax refund if you file a return.
  • Series I bonds are backed by the U.S. government and carry no default risk, making them one of the safest places to keep money.

How the interest rate is set and when it changes

The Treasury sets the Series I bond rate using a formula: your fixed rate plus the inflation rate. The fixed rate is determined when you buy the bond and stays the same for the entire 30-year life of the bond. The variable rate is based on the Consumer Price Index (CPI), which measures inflation, and it resets every six months.

When you buy a Series I bond, you receive the rate that is current on the day of purchase. If you buy on April 15, you get the rate that was set on May 1 of the previous year and will keep that rate until November 1. On November 1, your bond's variable portion updates to reflect the new inflation number. This means two people who buy the same bond on different dates may earn different total rates for the first six months they own it.

The fixed rate portion is set by the Treasury and announced in advance. The variable portion is based on the average CPI over the six months before the rate change date. You can check the current rate and historical rates on TreasuryDirect.gov before you buy.

The one-year holding requirement and early redemption penalty

You cannot cash in a Series I bond during the first 12 months you own it. This is a hard rule—there are no exceptions. If you need the money before one year has passed, you will have to wait.

If you cash in your bond between one and five years of ownership, you lose the last three months of interest. This is called the early redemption penalty. For example, if you cash in a bond after 18 months, you receive the interest earned through month 15, not month 18. After five years, you can cash in your bond without losing any interest.

This structure means Series I bonds work best for money you genuinely won't need for at least one year, and ideally for five years or longer if you want to avoid the penalty. If you think you might need the cash sooner, a high-yield savings account or money market account is a better choice.

Annual purchase limits and how to buy

You can buy up to $10,000 in Series I bonds per calendar year through your TreasuryDirect account. If you file a federal tax return, you can also use your refund to buy up to $5,000 more in Series I bonds, for a total of $15,000 per year. This limit resets on January 1 each year.

To buy Series I bonds, you create an account on TreasuryDirect.gov using your Social Security number and a valid email address. You link a bank account for the purchase, and the money is withdrawn when you buy. You can set up purchases to happen automatically on a schedule if you want to buy regularly. The bonds are held in your TreasuryDirect account and do not arrive as physical certificates unless you request them.

You cannot buy Series I bonds through a bank or broker. TreasuryDirect is the only place to purchase them directly from the Treasury. Some financial institutions offer them, but they charge fees on top of the purchase price, which reduces your return.

Tax treatment and when you pay taxes on the interest

You do not pay federal income tax on Series I bond interest until you cash in the bond or it reaches final maturity at 30 years. This is called tax-deferred growth. When you do cash it in, you report the total interest earned on your federal tax return for that year.

Series I bonds are exempt from state and local income tax. This can make them more valuable if you live in a state with high income tax, because you avoid that tax entirely on the interest.

If you use Series I bond proceeds to pay for may have access to education expenses—tuition and fees at an accredited school—you may be able to exclude the interest from your taxable income. This is called the Education Savings Bond Program, and it has income limits and other rules. You can read the details on TreasuryDirect.gov or speak with a tax professional to see if you may have access to.

Why Series I bonds are different from other Treasury bonds

Series I bonds are designed specifically to protect against inflation, which makes them different from Treasury bills, notes, and bonds. Those other Treasury products pay a fixed rate that does not change, so if inflation rises, your purchasing power falls. Series I bonds adjust automatically, so your rate moves with inflation.

Series EE bonds are another type of savings bond, but they work differently. Series EE bonds earn a fixed rate for 30 years, and they double in value if held for 20 years. Series I bonds do not have a doubling feature, but they adjust for inflation instead. Which one makes sense depends on whether you think inflation or deflation is the bigger risk to your savings.

Series I bonds are also safer than individual stocks or stock mutual funds because they are backed by the U.S. government. You will not lose your principal, and you will earn interest no matter what happens in the economy. The trade-off is that your returns are lower than stocks historically provide over long periods.

When Series I bonds make sense for your money

Series I bonds work well if you have money you won't need for at least one year and you want to protect it from inflation without taking investment risk. They are useful for emergency savings that you want to keep safe while earning a real return above inflation. They also work for money you are saving for a specific goal five or more years away, because you can avoid the early redemption penalty.

Series I bonds are less useful if you need access to your money within a year, if you can find a high-yield savings account paying a higher rate, or if you are comfortable taking on investment risk for potentially higher long-term returns. They are also not a good choice if you are in a very high tax bracket and want to minimize taxes, because the tax deferral only delays the tax bill rather than eliminating it.

The current rate environment matters too. When inflation is high, Series I bonds become more attractive because the variable rate rises. When inflation is low or falling, the rate may be lower than other safe options like high-yield savings accounts. Check the current rate on TreasuryDirect.gov before you decide.

Frequently Asked Questions

Can I lose money on a Series I bond?

No. The U.S. government backs Series I bonds, so you will always get your principal back. The interest rate can go down if inflation falls, but your fixed rate portion never goes below zero, so you will always earn some interest.

What happens if I need to cash in my bond before one year?

You cannot. Series I bonds have a mandatory one-year holding period. If you need the money before 12 months have passed, you will have to wait or find the cash elsewhere.

How do I check my bond's current value?

Log into your TreasuryDirect account and view your holdings. The account shows your current balance, the interest earned to date, and the next rate change date. You can also print a statement anytime.

Can I buy Series I bonds for someone else as a gift?

You can buy them in your own name and gift the account access to someone else, but you cannot open an account in another person's name. TreasuryDirect requires the account owner to have a Social Security number and to manage the account themselves.

What is the difference between the fixed rate and the variable rate?

The fixed rate is set when you buy and never changes. The variable rate is based on inflation and resets every six months. Your total interest rate is the sum of both. If inflation rises, only the variable portion goes up; the fixed portion stays the same.