Series I Savings Bonds

What it is

A Series I savings bond is a savings bond, not a marketable security. It is bought from the Treasury and redeemed with the Treasury, has no market price, trades on no exchange, and cannot lose principal to a price move the way a bond fund or a Treasury note can.

It is issued electronically through TreasuryDirect at face value, in any amount from $25 upward. The paper version, once purchasable with a portion of a federal tax refund, has been discontinued.

Purchases are capped per Social Security number per calendar year at $10,000 in electronic I bonds. Trusts, businesses, and other entities can hold separate allotments under their own registrations, so a household with multiple entities can exceed the individual figure.

The bond earns interest for up to thirty years and stops earning at that final maturity whether or not it has been cashed in. Interest is accrued rather than paid: it is added to the bond's redemption value every month, so the bond generates no cash flow on its own. Redemption is blocked entirely for the first twelve months; cashing in between twelve months and five years forfeits the three most recent months of accrued interest; after five years there is no penalty at all.

How the rate is calculated

The composite rate is built from a formula: fixed rate plus twice the semiannual inflation rate plus the product of the two. That cross term is small; it exists so the fixed and inflation components compound together rather than simply add.

The fixed rate is set by the Treasury for each six-month issue window and then stays with that specific bond for its entire life. Two bonds bought a few months apart can carry permanently different fixed rates even though both track the same inflation series afterward.

The semiannual inflation rate is derived from the change in the non-seasonally-adjusted Consumer Price Index for All Urban Consumers over the preceding six months, announced each May 1 and November 1. Each individual bond resets six months after its own issue month rather than on the announcement date, so a bond issued in September changes rate every March and September, not every May and November.

If deflation pushes the inflation component negative, the composite rate is floored at zero — it cannot go below that, and the bond's redemption value never falls even in a deflationary stretch. Interest accrues monthly and compounds semiannually, and it is this compounded, accrued figure that the Treasury pays out on redemption.

Taxes and access

There is no purchase cost. No commission, no expense ratio, no bid-ask spread — the Treasury sells and redeems at a computed value with nothing skimmed off either transaction.

Interest is subject to federal income tax and exempt from state and local income tax, the standard treatment for direct obligations of the United States. Federal tax can be deferred until redemption or final maturity, which is the default, or reported annually as it accrues; the annual election, once made for a given taxpayer, applies to all of that person's savings bonds, not just one.

The education savings bond exclusion can make the interest federally tax-free when the bond is redeemed in a year that qualified higher-education expenses are paid, subject to income phase-outs, a requirement that the bond owner be at least 24 at issue, and specific registration rules about whose name the bond is in.

Access runs entirely through TreasuryDirect, a government portal with its own identity-verification process. Some actions — inheriting a bond, changing a registration, closing an account after a death — require a paper form with a bank medallion signature guarantee rather than an online click. I bonds cannot be held inside an IRA or a brokerage account, cannot be pledged as collateral for a loan, and cannot be sold to another person. Redemption with the Treasury is the only way out.

Where it misleads

The published headline rate is a six-month rate stated in annualized terms, not a year's guaranteed return. Reading it as a durable annual yield is the most common mistake, and the rate changes again at the bond's own six-month reset.

A bond purchased during a high-inflation window with a fixed rate of zero earns nothing above inflation once that window passes. The fixed rate, not the inflation adjustment, is the only part of the return that persists for the bond's full life, and when it is zero the bond is a pure inflation hedge with no real yield.

The twelve-month lockup is absolute, with no exception for hardship. Money placed into I bonds is not available as an emergency reserve during that first year, and the three-month interest forfeiture continues to apply through year five.

The per-SSN annual limit means the instrument cannot absorb a large sum in one purchase, which frustrates people who discover it in the middle of a visible inflation spike and want to move a six-figure balance in at once. And because interest only accrues into redemption value rather than being paid out, the bond produces no income stream — it does not meet a spending need without cashing in principal, and TreasuryDirect itself, being a government system rather than a brokerage, tends to be slow on account recovery, entity registrations, and beneficiary changes.

Where you will meet it on this site

On the cash rates page, I bonds sit alongside bank deposits and short Treasury bills as one of the places idle cash can be parked, with the caveat that the twelve-month lockup makes them a poor substitute for true cash reserves.

On the Treasury page, I bonds sit next to TIPS, the marketable inflation-linked alternative that carries a market price, can be sold before maturity, and generates taxable phantom income in years when no cash is received — a contrast to the I bond's tax-deferred accrual.

In discussions of real yield, the I bond's fixed rate is used as the explicit example of a real component, with the inflation adjustment serving as the index that tracks CPI-U. And next to Series EE savings bonds, the other Treasury savings product, which pays a flat fixed rate instead of an inflation-linked one but carries a distinct Treasury guarantee to double in value if held to twenty years.