I bonds start earning interest on the first day of the month you buy them, and that interest is added to the bond every six months. You don’t actually receive any of it until you cash the bond in. You can’t redeem during the first 12 months at all, and if you redeem before five years, you give back the last three months of interest as a penalty.
How Interest Accrues on an I Bond
Interest begins accruing on the first day of your purchase month, regardless of the calendar date you completed the transaction. Buy on January 28 and you get credit for all of January, the same as a January 1 buyer.1eCFR. Part 359 – Offering of United States Savings Bonds, Series I – Section 359.16
The bond’s redemption value only moves once a month, on the first. Between those dates, nothing changes on paper even though interest is accruing behind the scenes.
Every six months from the issue date, the Treasury takes the interest earned during that half-year and adds it to the bond’s principal. From that point forward, interest is calculated on the larger balance. A $10,000 bond that earned $200 in its first six months would earn its next round of interest on $10,200.2TreasuryDirect. I Bonds
This monthly accrual and semiannual compounding continues for up to 30 years: an original 20-year period plus a 10-year extension. After 30 years the bond stops earning anything, so there’s no reason to keep holding it.3eCFR. Part 359 – Offering of United States Savings Bonds, Series I – Section 359.5
When You Can Actually Get the Money
Accrued interest doesn’t turn into cash in your hand until you redeem the bond. Three rules govern when you can do that and how much you keep.
First, you cannot redeem an I bond during its first 12 months. The lockout is absolute for bonds issued on or after February 1, 2003.4eCFR. Part 359 – Offering of United States Savings Bonds, Series I – Section 359.6
Second, if you redeem between the one-year and five-year marks, you forfeit the most recent three months of interest. The Treasury pays you as though you cashed the bond three months earlier than the actual redemption date. Cash out at 24 months and you receive 21 months of interest. The redemption value will never drop below what you originally paid, even with the penalty applied.5eCFR. Part 359 – Offering of United States Savings Bonds, Series I – Section 359.7
Third, once you pass the five-year mark, the penalty disappears. Every dollar of interest earned since the issue date is yours when you redeem.
Electronic bonds held in TreasuryDirect can be redeemed in partial amounts of $25 or more, in penny increments, as long as at least $25 stays in the bond. You only receive interest on the portion you cash out; the rest keeps accruing.6TreasuryDirect. Cashing EE or I Savings Bonds
Timing Your Purchase and Redemption
Because a full month of interest is credited to whoever holds the bond on the first, the calendar can work in your favor at both ends.
On the buy side, purchasing near the end of a month gives you a full month of interest credit for just a few days of holding. A January 31 purchase earns the same January interest as a January 1 purchase.7TreasuryDirect. I Bonds Interest Rates
On the sell side, the logic flips. There’s no partial-month interest, so redeeming mid-month adds nothing beyond the interest that was already posted on the first. If you’ve decided to cash out, doing it early in the month captures that month’s credit without leaving your money sitting idle.
When Your Interest Rate Changes
An I bond’s rate has two parts. The fixed rate is locked in at purchase and never changes for the life of the bond. The inflation rate resets every six months based on the CPI-U.7TreasuryDirect. I Bonds Interest Rates
The Treasury announces new rates every May 1 and November 1, but the new rate doesn’t take effect for your bond on the announcement date. Each bond stays on its current rate for a full six months, then rotates to whatever rate was most recently announced. The change date depends on your bond’s issue month:
- January or July issue: rate changes each January 1 and July 1
- February or August issue: rate changes each February 1 and August 1
- March or September issue: rate changes each March 1 and September 1
- April or October issue: rate changes each April 1 and October 1
- May or November issue: rate changes each May 1 and November 1
- June or December issue: rate changes each June 1 and December 1
Because of this lag, a rate increase announced in November may not reach a January-issue bond until the following July. The system guarantees every holder a full six months at each announced rate.7TreasuryDirect. I Bonds Interest Rates
If deflation ever pushes the inflation component so far negative that the combined rate would go below zero, the Treasury holds the composite rate at zero. Your balance won’t shrink. Deflation can still pull the composite below the fixed rate, though, as long as the fixed rate is positive.7TreasuryDirect. I Bonds Interest Rates
When You Owe Tax on the Interest
I bond interest is subject to federal income tax but exempt from state and local income taxes. It is also exempt from federal estate, gift, and excise taxes and from state estate or inheritance taxes.8TreasuryDirect. Tax Information for EE and I Bonds
Most owners defer reporting until they redeem the bond or it reaches final maturity. Under that approach, you get a Form 1099-INT in the year you cash out and report all the accumulated interest on that return. For bonds redeemed at a bank, the 1099-INT arrives at redemption or by January 31 of the following year. For bonds in TreasuryDirect, it appears in your account by January 31.8TreasuryDirect. Tax Information for EE and I Bonds
You can instead choose to report interest annually as it accrues. This can make sense if your current tax bracket is low and you expect it to rise. Switching from deferring to annual reporting doesn’t require IRS permission, but you have to report all previously unreported interest on those bonds in the year of the switch. Going the other direction requires IRS Form 3115.8TreasuryDirect. Tax Information for EE and I Bonds
There’s a narrow federal exclusion if you use the proceeds for qualified higher education expenses for yourself, your spouse, or a dependent. The bond must have been issued after 1989 in your name (or jointly with your spouse), you must have been at least 24 when it was issued, and you cannot file as married filing separately. The exclusion phases out at higher incomes: for the 2025 tax year, the phase-out starts at a modified adjusted gross income of $99,500 for single filers and $149,250 for joint filers, and disappears entirely at $114,500 and $179,250. These thresholds adjust annually, so check the current IRS Form 8815 for your tax year.9Internal Revenue Service. Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 (Form 8815)
How to See Interest Earned So Far
For electronic bonds, sign in to TreasuryDirect. Each bond’s page shows the purchase price, current value (principal plus compounded interest, minus the early-redemption penalty if it still applies), the current interest rate, and the next scheduled rate-change date. The displayed value refreshes on the first of each month.2TreasuryDirect. I Bonds
If your bond is less than five years old, the value you see already has the three-month penalty netted out, which is why the balance can look flat in the early months. Once you cross five years, the displayed value jumps because the penalty buffer stops being subtracted.
If you still hold paper I bonds, the Savings Bond Calculator on TreasuryDirect will show the current value, interest earned to date, next accrual date, and maturity date once you enter the series, denomination, serial number, and issue date. It also shows values for past and future dates in the current interest period, which is useful when you’re picking a redemption month.10TreasuryDirect. Paper Savings Bond Calculator