An I Bond is a U.S. savings bond designed to reflect both a fixed rate set at issuance and changes in inflation. It earns interest for up to 30 years, cannot be sold to another investor, and must be held for at least 12 months. Those features make it very different from a Treasury note or bond traded in the market.
An I Bond's composite rate can change every six months from the bond's own issue month, while its fixed rate stays the same for life; access to the money is restricted during the first year.
What exactly is an I Bond?
Series I savings bonds are non-marketable securities issued by the U.S. Department of the Treasury. “Non-marketable” means there is no secondary market where holders can sell them to other investors. Instead, eligible owners redeem them through TreasuryDirect under the applicable rules.
As of January 1, 2025, newly purchased I Bonds are available electronically rather than as paper bonds. An electronic I Bond starts at $25 and can be purchased in any amount above that to the penny, subject to the annual limit. The purchase price equals the face amount: a $100 purchase adds a $100 bond, not a bond bought for $50 with a future face value of $100.
The security earns interest monthly. Every six months, earned interest is added to principal, so the next six-month period applies a new rate to a larger balance. Interest does not arrive as a separate cash payment; it accumulates in the bond's redemption value.
How the I Bond composite rate is calculated
The earnings rate has two components. The fixed rate is assigned when the bond is issued and remains unchanged for that bond's life. The inflation rate is based on changes in the non-seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U), including food and energy. Treasury announces new rates each May and November.
The fixed rate and semiannual inflation rate must be entered as decimals in this formula. The result is an annual rate that applies for a six-month earning period; it is not a promise that the bond will earn that rate for a full year or for its entire life.
A formula example using announced rates
For a bond issued in the November 2026–April 2027 window, the calculation shown by TreasuryDirect is:
This 5.51% composite rate applies to the relevant six-month period. The 1.40% fixed component persists, but the inflation component will reset. A future composite rate can be higher or lower.
Can the composite rate be negative?
Deflation can reduce the composite rate below the fixed rate. However, TreasuryDirect states that the composite rate is not allowed to fall below zero. A zero composite rate means no new interest during that six-month period; it does not create a negative market quotation like a price decline in a traded bond.
Why your bond's issue month matters
New inflation rates announced in May and November do not necessarily apply to every existing bond immediately. Each bond follows a six-month schedule based on its own issue month. For example, a bond issued in January starts a new rate period each July and January; a bond issued in June changes rates each December and June.
| Issue month | Rate changes every | Issue month | Rate changes every |
|---|---|---|---|
| January | July and January | July | January and July |
| February | August and February | August | February and August |
| March | September and March | September | March and September |
| April | October and April | October | April and October |
| May | November and May | November | May and November |
| June | December and June | December | June and December |
I Bonds earn interest from the first day of the purchase month. Twice a year, the previous six months of interest are added to principal. This semiannual compounding is separate from the announcement of a new composite rate.
Purchase limits and ownership rules
TreasuryDirect's general annual purchase limit is $10,000 in electronic I Bonds per Social Security Number or Employer Identification Number per calendar year. For an individual account, the limit applies to the Social Security Number of the first-named registrant. Entity, trust, gift and beneficiary registrations can involve additional rules, so the account registration itself deserves attention.
- Minimum purchase: $25, with higher electronic amounts permitted to the penny.
- Purchase channel: an eligible TreasuryDirect account; new paper purchases are no longer generally available.
- Ownership: the legal registration affects who controls the bond, who can redeem it and who reports the interest.
- No secondary sale: an owner cannot list an I Bond through a broker or sell it to another person.
The purchase limit controls how much can be bought. It is not a statement about FDIC coverage, brokerage protection or a recommended allocation. Review current TreasuryDirect eligibility and registration rules directly.
Redemption, lockup and the interest penalty
An I Bond cannot be redeemed during its first 12 months. After that, it can generally be redeemed through TreasuryDirect, but redeeming before five years means forfeiting the last three months of interest. For example, a redemption after 18 months delivers the first 15 months of interest.
Once a bond is five years old, that early-redemption penalty no longer applies. The bond can continue earning interest for up to 30 years unless redeemed earlier. Electronic bonds are paid automatically at final maturity according to TreasuryDirect procedures.
| Bond age | General redemption treatment |
|---|---|
| Less than 12 months | Cannot be redeemed under the standard rule |
| 12 months to less than 5 years | Can be redeemed; the last three months of interest are forfeited |
| 5 to 30 years | Can be redeemed without that three-month penalty; interest continues if not redeemed |
| 30 years | Final maturity; the bond stops earning interest |
TreasuryDirect notes that values displayed for bonds less than five years old already exclude the last three months of interest. This prevents the displayed redemption value from implying that the penalty amount is available.
How I Bond interest is taxed
Interest is generally subject to federal income tax but exempt from state and local income tax. Estate, gift, excise, state estate or inheritance taxes may still be relevant. Owners can generally defer reporting until the year they receive the money or report interest annually. A Form 1099-INT is issued for the year in which deferred interest is paid, but not for each annual accrual under the annual reporting method.
A federal education interest exclusion may be available for qualifying Series EE and I savings bonds used for eligible higher-education expenses. It is conditional: issue date, owner age and registration, filing status, qualified expenses and income limits all matter. “Used for education” by itself does not establish eligibility. See the savings bond tax section, IRS Publication 970 and Form 8815 instructions.
I Bonds compared with related securities
| Feature | I Bonds | TIPS | EE Bonds | Treasury bills |
|---|---|---|---|---|
| Inflation mechanism | Composite rate includes CPI-U component | Principal adjusts with CPI-U | No inflation component | No inflation component |
| Trading | Non-marketable | Marketable | Non-marketable | Marketable |
| Rate structure | Fixed plus semiannual inflation component | Fixed real coupon applied to adjusted principal | Fixed rate; special maturity rules may apply | Return comes from purchase discount and face value at maturity |
| Access | 12-month lockup; possible three-month penalty before five years | Can be sold before maturity at market price | 12-month lockup; possible three-month penalty before five years | 4–52 week original terms; can be sold before maturity |
| Tax basics | Federal tax; state/local exemption | Federal tax; state/local exemption; adjusted principal can affect annual tax | Federal tax; state/local exemption | Federal tax; state/local exemption |
TIPS can decline in market value and are not subject to the I Bond annual purchase cap. I Bonds do not have a quoted market price but have liquidity restrictions instead. A bond fund is different again: it has no personal maturity date and its share price changes with the value of its portfolio. Our comparison guide explains that distinction.
Seven common misunderstandings
- “The advertised composite rate is permanent.” Only the fixed component is permanent. The composite rate resets.
- “Every bond changes rate on May 1 and November 1.” The bond's issue month determines when a newly announced inflation rate reaches it.
- “The annual composite rate is paid twice in cash.” Interest accrues monthly and compounds semiannually inside the bond.
- “I can redeem at any time.” The standard rules impose a 12-month lockup and an early-redemption penalty before five years.
- “I Bonds trade at a premium or discount.” They are non-marketable; their value follows savings-bond accrual rules rather than secondary-market pricing.
- “State tax exemption means entirely tax-free.” Federal tax generally applies.
- “Inflation protection removes every risk.” CPI-U measurement, rate timing, taxes, purchase limits and restricted access still affect the outcome.
A neutral reading checklist
Before relying on any summary of I Bonds, verify the following against current official information:
- The fixed rate and inflation component for the exact issue window.
- The bond's own six-month rate-change months.
- The current annual purchase limit and account eligibility rules.
- Whether the 12-month lockup and possible three-month penalty are compatible with the intended time horizon.
- The federal reporting method and any education-exclusion requirements.
- The legal registration, beneficiary designation and ownership records in TreasuryDirect.
Frequently asked questions
Do I Bonds have a market price?
No. I Bonds are non-marketable savings bonds. Their redemption value is determined by Treasury's accrual rules, not by bids and offers between investors. Marketable Treasury securities, by contrast, can trade above or below face value.
How long does an I Bond earn interest?
Up to 30 years, unless it is redeemed before then. The composite rate can change during that period, and the bond stops earning at final maturity.
What happens if I redeem after 18 months?
Under the standard early-redemption rule, you receive the first 15 months of interest: the last three months are forfeited because the bond is less than five years old.
Can I buy an I Bond through a brokerage account?
New electronic I Bonds are purchased through TreasuryDirect, not as ordinary exchange-traded brokerage securities. A broker may offer other inflation-linked products, but those are not the same security.
Does a higher inflation announcement immediately change my rate?
Not necessarily. A new inflation component begins for a particular bond at its next six-month rate-change date, which depends on the issue month.
Are I Bonds and TIPS interchangeable?
No. Both respond to CPI-U, but their structures differ. I Bonds are non-marketable and have purchase and redemption rules; TIPS are marketable, adjust principal and can fluctuate in price.
Official sources and further reading
- TreasuryDirect — I Bonds at a glance: purchase limits, interest, redemption and tax basics.
- TreasuryDirect — I Bond interest rates: current and historical rates, formula and issue-month schedule.
- TreasuryDirect — Tax information for EE and I Bonds: reporting methods and Form 1099-INT.
- TreasuryDirect — Comparing TIPS and Series I savings bonds.
- IRS Publication 970 — Tax Benefits for Education: education exclusion requirements.
This guide was reviewed on November 5, 2026. Rate figures are dated examples, not live data. Bond Atlas is independent and is not affiliated with these agencies.