How Do Series I Bonds Work: Limits, Penalties, and Taxes

Series I savings bonds are U.S. Treasury bonds that pay a rate combining a fixed return with an inflation adjustment that resets twice a year, and understanding how Series I bonds work comes down to five things: the rate formula, the annual purchase limit, the one-year lockup, the tax treatment, and the 30-year life. Bonds issued between November 2025 and April 2026 carry a composite rate of 4.03%.¹ You buy them electronically through TreasuryDirect, up to $10,000 per Social Security Number per calendar year, and interest is exempt from state and local income tax.²

What You Actually Earn

Every I bond’s rate is built from two parts. A fixed rate is set when you buy the bond and stays with that bond for its entire life. An inflation rate is layered on top and changes every six months based on the Consumer Price Index for All Urban Consumers. Treasury announces new rates on May 1 and November 1.³

The two pieces don’t just add. Treasury combines them with this formula:

Composite rate = fixed rate + (2 × semiannual inflation rate) + (fixed rate × semiannual inflation rate)¹

For bonds bought from November 2025 through April 2026, the fixed rate is 0.90% and the semiannual inflation rate is 1.56%, which produces the 4.03% composite figure.¹ The May rate reflects CPI-U changes from the prior October through March; the November rate reflects April through September.

The composite rate can never fall below zero. If deflation pushes the inflation component negative enough to overwhelm the fixed rate, the rate stops at zero and your bond will not lose value.³

How Much You Can Buy

Each Social Security Number or Employer Identification Number can buy up to $10,000 in electronic I bonds per calendar year.² The same $10,000 cap applies whether you’re an individual, a trust, a corporation, or an estate. The old option of buying an extra $5,000 in paper bonds with a tax refund has been discontinued, so the electronic $10,000 is the whole ceiling.⁴

To buy, you need to be a U.S. citizen or resident with a Social Security Number. Minor children can hold bonds through a linked account managed by a parent or guardian.

Gift bonds work as a limited workaround. When you buy an I bond as a gift, it counts toward the recipient’s $10,000 limit in the year they receive it, not yours. While the bond sits in your gift box waiting to be delivered, it doesn’t count against your own cap.² The recipient must have a TreasuryDirect account to receive it.

Buying Through TreasuryDirect

All electronic purchases run through TreasuryDirect.gov. Opening an account requires your Social Security Number, a U.S. physical address, an email address, and a U.S. checking or savings account with routing and account numbers. That bank account funds your purchases and receives your redemptions. In some cases Treasury will ask you to submit FS Form 5444, signed before a notary or certifying officer, to verify your identity.⁵

Once your account is active, go to BuyDirect, choose Series I Savings Bonds, and enter an amount of $25 or more. You can buy to the penny, so $36.73 is valid.⁶ The bond usually posts to your holdings within one to two business days.

One timing detail is worth knowing. I bonds earn interest from the first day of the month of purchase, regardless of the actual purchase date.¹ Buying on the last business day of a month captures a full month of interest for a single day of ownership. Buying early in the month gains you nothing.

The Lockup, the Penalty, and the End of the Line

You cannot cash an I bond during the first 12 months. That rule is absolute; there’s no hardship exception.⁷

From month 12 through the end of year five, redeeming costs you the last three months of interest. Treasury computes the value as if you had cashed the bond three months earlier, so a bond redeemed at 18 months pays 15 months of interest. Even after the penalty, the bond will not pay less than what you originally put in.⁷

Once the bond has been held five years, you can cash it without any penalty. It keeps earning for up to 30 years total, made up of a 20-year original maturity and an automatic 10-year extension. At 30 years the bond stops earning and should be redeemed.⁷

To redeem an electronic bond, log into TreasuryDirect, open ManageDirect, and choose “Redeem securities.” Proceeds go to the linked bank account.⁸

How the Interest Is Taxed

I bond interest is subject to federal income tax and completely exempt from state and local income tax.⁹ For a saver in a high-tax state, that exemption adds a small but real edge over comparable taxable investments.

You choose when to report the interest to the IRS.¹⁰ Under the deferral method, you wait until you cash the bond or it matures, then report all the accumulated interest that year. Most savers pick this route. Under the annual method, you report each year’s increase in redemption value as interest, even though you haven’t touched the money.

Whichever method you pick applies to all your EE and I bonds. You can switch from deferral to annual without IRS permission, but you have to report all previously unreported accrued interest in the year you switch.¹⁰

When you cash a bond or it hits final maturity, you get a 1099-INT for the interest earned. Electronic bond forms show up in your TreasuryDirect account by January 31 of the following year. Total taxable interest above $1,500 for the year means you also complete Schedule B with your return.¹¹

Education Exclusion

If you use I bond proceeds for qualified higher education expenses — tuition and required fees at an eligible institution for you, your spouse, or a dependent — some or all of the interest can be excluded from federal tax.¹² Two rules catch people. First, the bond owner must have been at least 24 years old when the bond was issued, so a bond registered in a child’s name does not qualify; if you’re saving for a child, register the bond in your own name or jointly with your spouse. Second, the exclusion phases out at higher incomes. For tax year 2026, the modified adjusted gross income phase-out is $101,800 to $116,800 for single filers and $152,650 to $182,650 for joint filers, with the exclusion gone above the top of the range. You claim it on Form 8815.¹³

What Happens When the Owner Dies

Registration determines what happens to a bond at death. A named co-owner automatically becomes the sole owner when the other co-owner dies. A named beneficiary becomes the sole owner when the original owner dies. Either way, the survivor provides proof of death to Treasury to claim the bond.¹⁴

The distinction matters while the original owner is still alive. A co-owner can cash the bond anytime, without permission from the other co-owner. A beneficiary has no access until the owner dies. If the beneficiary predeceases the owner, the bond is treated as if no beneficiary had ever been named, and it passes through the owner’s estate.¹⁴

Reissuing a bond to a new owner triggers a 1099-INT in the previous owner’s name and Social Security Number for interest earned up to that point. The new owner is only on the hook for interest that accrues after the reissue.⁹

1
TreasuryDirect. I Bonds Interest Rates
2
TreasuryDirect. Savings Bonds How Much Can I Spend/Own?
3
eCFR. 31 CFR 359.13 – What Are Composite Rates?
4
Internal Revenue Service. Form 8888
5
TreasuryDirect. TreasuryDirect Account Authorization (FS Form 5444)
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TreasuryDirect. I Bonds – TreasuryDirect
7
eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I
8
TreasuryDirect. Cash EE or I Savings Bonds
9
TreasuryDirect. Tax Information for EE and I Bonds
10
Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
11
Internal Revenue Service. Savings Bonds 1
12
Internal Revenue Service. About Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
13
TreasuryDirect. Using Bonds for Higher Education
14
eCFR. 31 CFR Part 315, Subpart L – Deceased Owner, Coowner or Beneficiary