Series I savings bonds work by pairing a fixed interest rate that stays with the bond for up to 30 years with an inflation rate that resets every six months, so the return keeps pace with the Consumer Price Index. They’re issued by the U.S. Treasury, backed by the full faith and credit of the federal government, and sold only in electronic form through TreasuryDirect. The current composite rate, set in May 2025, is 3.98%, and each Social Security Number can buy up to $10,000 of I bonds per calendar year.
How the Rate Is Built
Every I bond earns a composite rate made of two pieces. The fixed rate is locked in the day you buy and never changes for the life of the bond. The inflation rate is tied to the Consumer Price Index for All Urban Consumers (CPI-U), which tracks the prices of everyday goods and services including food and energy, and it resets every six months.1TreasuryDirect. I Bonds Interest Rates
Roughly speaking, the composite rate is the fixed rate plus twice the semiannual inflation rate, plus a small cross-product term. The rate can never go below zero, so a period of negative inflation cannot eat into your principal.2eCFR. 31 CFR Part 359 Subpart A – General Information – Section: 359.14 How Are Composite Rates Determined
The Treasury announces new fixed and inflation rates every May 1 and November 1. The fixed rate you get is the one in effect the month you buy. The inflation portion, though, resets every six months counted from your bond’s own issue date, not from the May/November announcement, so two bonds bought in different months will step to new inflation rates at different times.3TreasuryDirect. Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 3.98%, Series EE to Earn 2.70%
Bonds issued from May through October 2025 carry a fixed rate of 1.10% and a semiannual inflation rate of 1.43%, producing the 3.98% composite. Older bonds keep whatever fixed rate they were originally issued with and pick up the new inflation rate at their next six-month reset.4TreasuryDirect. Fiscal Service Announces New Savings Bonds Bonds Rates, Series I to Earn 3.98%, Series EE to Earn 2.70%
How to Buy Them
You can buy I bonds if you’re a U.S. citizen, a U.S. resident, or a civilian employee of the federal government living anywhere.5TreasuryDirect. I Bonds To open a TreasuryDirect account you need a Social Security Number, a valid email address, and a U.S.-based bank account.
Since January 1, 2025, electronic bonds are the only version sold. The old Tax Time Savings Bonds program, which let taxpayers direct up to $5,000 of a federal refund into paper I bonds through IRS Form 8888, has ended.6TreasuryDirect. Using Your Income Tax Refund to Buy Paper Savings Bonds
Once your account is open, you link your bank, pick an amount, and confirm the purchase. The minimum is $25, and you can buy any amount above that down to the penny. The bond usually shows up in your account within a few business days after the funds clear.5TreasuryDirect. I Bonds
The $10,000 Annual Limit
Each Social Security Number or Employer Identification Number can buy up to $10,000 of electronic I bonds per calendar year.7eCFR. 31 CFR 363.52 – What Is the Principal Amount of Book-Entry Series EE and Series I Savings Bonds That I May Acquire in One Year Because the paper-through-refund route no longer exists, $10,000 is now the whole individual ceiling.5TreasuryDirect. I Bonds
If you own a business, whether a sole proprietorship, LLC, partnership, or corporation, that entity can buy another $10,000 under its own EIN through a separate TreasuryDirect entity account. The same applies to personal trusts and testamentary trusts.8TreasuryDirect. Questions and Answers about Series I Savings Bonds A married couple who each run a business could in theory buy up to $40,000 in a year: two individual accounts plus two entity accounts.
Gift bonds work under the recipient’s limit, not yours. You can buy an I bond as a gift, but once it’s delivered it counts against the $10,000 the recipient could otherwise buy that year. The recipient needs their own TreasuryDirect account to accept it.9TreasuryDirect. FAQs about Undelivered Gift Bonds
A parent or other primary supporter can also open a minor linked account inside their own TreasuryDirect account for a child under 18. The child gets their own $10,000 limit tied to their Social Security Number, and the linked account lets you buy, redeem, and receive gift bonds on their behalf.10TreasuryDirect. How Do I…? To set one up, use the ManageDirect tab and choose “Establish a Minor Linked Account.” Minor linked accounts are only available under individual accounts, not entity accounts.
When You Can Cash Them In
I bonds have a mandatory 12-month holding period. You cannot redeem for any reason during the first year.11eCFR. 31 CFR 359.6 – When May I Redeem My Series I Bond After that, you can cash any time, but if you redeem before five full years have passed, you forfeit the last three months of interest. Redeem at 18 months, and you keep 15 months’ worth.12eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I – Section: 359.7
Once you’ve held the bond five years or more, no penalty applies and you receive all accrued interest. Holding periods are counted from the first day of the month you bought the bond, so a purchase on May 25 is treated as issued May 1.13eCFR. 31 CFR Part 359 Subpart A – General Information – Section: 359.3
The 12-month lockup can be waived if you live in an area under an official federal disaster declaration. For electronic bonds, call TreasuryDirect at 844-284-2676 and explain the situation.14TreasuryDirect. Savings Bonds Affected by a Disaster
An I bond earns interest for a maximum of 30 years: a 20-year original maturity plus a 10-year extension.15eCFR. 31 CFR Part 359 Subpart A – General Information – Section: 359.5 At final maturity, interest stops, and if you’ve been deferring the tax, the full accumulated interest becomes taxable that year whether you cash the bond or not. There’s no reason to hold past that date; redeem through TreasuryDirect.
How the Interest Is Taxed
I bond interest is subject to federal income tax but exempt from all state and local income taxes.16GovInfo. 31 USC 3124 – Exemption From Taxation You choose when to report the federal side:
- Cash basis, the default: you report interest in the year you redeem the bond or the year it reaches 30-year maturity, whichever comes first. Nothing extra is required to use this method.
- Accrual basis: you elect to report interest each year as it accrues, even without cashing anything. Once elected, the method applies to all your savings bonds, and you need IRS permission to switch back.
Most investors stick with cash basis so the interest compounds tax-deferred. When you redeem, TreasuryDirect issues a 1099-INT covering the accrued interest, and it goes on that year’s federal return.17GovInfo. 26 USC 454
Education Exclusion
Under 26 U.S.C. ยง 135, you can exclude I bond interest from federal tax entirely if you use the proceeds for qualified higher education expenses, generally tuition and required fees at an eligible college or university.18Office of the Law Revision Counsel. 26 USC 135 – Income From United States Savings Bonds Used to Pay Higher Education Tuition and Fees Several conditions apply:
- The bond must be issued to someone who was at least 24 before the issue date. Bonds registered to children generally don’t qualify.
- The bond must be in your name, or jointly with your spouse. A bond registered in a child’s name doesn’t qualify even if the parent paid for it.
- For 2026, the exclusion begins phasing out when modified adjusted gross income exceeds $101,800 ($152,650 for joint filers) and disappears at $116,800 ($182,650 joint). The thresholds adjust annually for inflation.
- You must file as single, head of household, or married filing jointly. Married filing separately doesn’t qualify.
If qualified education expenses come to less than the total bond proceeds (principal plus interest), only a proportional share of the interest can be excluded.
What Happens If the Owner Dies
What becomes of an I bond after the owner’s death depends on how it was registered. A named co-owner or beneficiary automatically becomes the sole owner on proof of death. If neither was designated, the bond falls into the estate.19eCFR. 31 CFR Part 315 Subpart L – Deceased Owner, Coowner or Beneficiary
Taxes on inherited bonds turn on the deferral. If the deceased was using cash basis, the executor can choose to report all interest earned through the date of death on the decedent’s final return; the heir then only reports interest that accrues afterward. Without that election, all accumulated interest, before and after death, becomes taxable to whoever ultimately cashes the bond.20Internal Revenue Service. Survivors, Executors, and Administrators The right call depends on the tax brackets involved, so a tax professional is worth consulting when the balances are meaningful.