banking-and-credit

Treasury I Bonds — Inflation-Protected Savings Earning Up to 9%+ in High-CPI Years

Difficulty Easy Risk None Applies To All Potential Savings $500–$2,000+ per year in inflation-protected interest on a $10,000 purchase Last Verified 2026-04-04

Treasury I Bonds — Inflation-Protected Savings Earning Up to 9%+ in High-CPI Years

What Is It?

Series I Savings Bonds (I Bonds) are US government savings bonds whose interest rate is directly tied to inflation. The composite rate combines a fixed rate (set at purchase, held for life) plus a variable rate reset every May and November based on the Consumer Price Index for All Urban Consumers (CPI-U). When inflation is high, I Bonds earn exceptional rates — in 2022, the annualized composite rate hit 9.62%. When inflation cools, rates fall accordingly.

They are backed by the full faith and credit of the US government, meaning there is effectively zero credit risk. Interest accrues monthly, is compounded semiannually, and is exempt from state and local income taxes. You pay federal income tax only when you redeem — giving you control over when to recognize the income.

How It Works

Purchase limits:

  • $10,000 per person per calendar year, purchased electronically via TreasuryDirect
  • An additional $5,000 per year in paper I Bonds, purchased only by directing your federal tax refund (via IRS Form 8888)
  • Married couples can each buy $10,000, effectively $20,000/year electronically per household
  • You can also purchase I Bonds in the name of a child, trust, or LLC — each entity gets its own $10,000 limit

Opening TreasuryDirect: Go to treasurydirect.gov and open an account. You’ll need your Social Security number, a US address, a bank account for funding, and an email address. The interface is dated but functional. Fund the purchase with an ACH transfer from your bank.

Holding period and penalties:

  • You cannot redeem I Bonds in the first 12 months — they are completely illiquid for the first year
  • If you redeem between 12 and 60 months (5 years), you forfeit the last 3 months of interest
  • After 5 years, you can redeem at any time with no penalty
  • I Bonds stop earning interest after 30 years

Tax timing strategy: You can defer federal income tax on all accrued interest by holding the bond and not redeeming. This is especially valuable near retirement if you expect to be in a lower tax bracket later. Alternatively, you can elect to report interest annually (useful for children in low/no-tax brackets).

What Most People Don’t Know

  • The education tax exclusion is real but narrow. If you use I Bond proceeds to pay qualified higher education expenses in the same year you redeem, you may be able to exclude the interest from federal income entirely under the Education Savings Bond Program (26 U.S.C. § 135). Income phase-outs apply: in 2024, the exclusion begins phasing out at $96,800 (single) / $145,200 (married filing jointly).
  • The “gift box” strategy allows pre-purchasing. You can purchase I Bonds as a gift for your spouse and park them in a TreasuryDirect “gift box” without them counting against this year’s limit for the recipient — until you actually deliver them. This is a legal technique for front-loading purchases in years when inflation is expected to be high.
  • The fixed rate matters long-term. When you buy an I Bond, the fixed component of the rate is locked in for the life of the bond. In periods when the fixed rate is 1%+ (it was 1.30% as of late 2023), buying offers a permanent real yield above inflation for up to 30 years. Buying in years when the fixed rate is 0% means you’re only keeping pace with inflation, not beating it.
  • Taxes on savings bond interest are not automatically withheld. Unlike bank interest, the government does not withhold taxes on I Bond interest. You’ll owe federal income tax in the year you redeem, which can mean a surprise tax bill — plan accordingly.

Frequently Asked Questions

What is the current I Bond rate?

Rates change every May 1 and November 1. The composite rate reflects both the fixed rate set at purchase and the inflation component. Check the current rate at treasurydirect.gov/savings-bonds/i-bonds/i-bond-interest-rates. The rate you see applies to bonds purchased in the current 6-month window.

Can I buy I Bonds if I’m self-employed or have a small business?

Yes. A sole proprietorship, LLC, or S corporation can purchase up to $10,000 in I Bonds per calendar year as a separate entity. This is in addition to your personal $10,000 limit. You’ll need a separate TreasuryDirect account for the business entity.

What happens to I Bonds when I die?

I Bonds can be registered in co-ownership (either owner can redeem) or with a beneficiary designation. If a beneficiary is named, the bond passes directly to the beneficiary without going through probate. If not, the bond becomes part of your estate. You can update beneficiary designations in TreasuryDirect.

Is there a minimum purchase amount?

Yes — $25 for electronic I Bonds purchased through TreasuryDirect. Paper I Bonds (via tax refund) come in denominations of $50, $100, $200, $500, and $1,000.

Are I Bonds better than TIPS (Treasury Inflation-Protected Securities)?

They serve different purposes. I Bonds are simpler, have no secondary market risk, and are ideal for individual savers within the annual limits. TIPS can be purchased in unlimited amounts, trade on the secondary market (introducing price risk), and are available through brokerage accounts. For amounts above $10,000 or in tax-advantaged accounts, TIPS may be more practical.

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