Series I Bond
A Series I Bond is a non-marketable U.S. government savings bond that pays a composite interest rate combining a fixed base rate set at purchase and a variable inflation adjustment that resets every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U), providing built-in protection against inflation over a holding period of up to 30 years.
Series I Bonds, commonly called I bonds, were introduced by the U.S. Treasury in 1998 specifically as an inflation-protected savings vehicle for retail investors. They are issued through TreasuryDirect in electronic form and, through a special provision, via paper bonds purchased with a federal tax refund up to $5,000 per year. Purchase limits are $10,000 per Social Security number per calendar year for electronic I bonds, plus the $5,000 paper limit, for a combined maximum of $15,000 annually.
The composite rate on an I bond is calculated using a formula that combines the fixed rate and the semi-annual inflation rate derived from CPI-U changes over the most recent six-month period ending in March or September. The Treasury announces new composite rates each May 1 and November 1. Each bond earned its first rate at purchase and transitions to new composite rates every six months thereafter based on the fixed component locked in at purchase combined with the current inflation adjustment.
I bonds gained extraordinary public attention in 2021 and 2022 when surging U.S. inflation drove composite rates to 7.12%, then 9.62% — the highest rates since the product's inception. These rates substantially exceeded those available on savings accounts, money market accounts, and most short-term CDs, triggering record demand. The TreasuryDirect website experienced extended service disruptions as retail investors rushed to purchase bonds before each rate announcement date.
Like Series EE bonds, I bonds cannot be redeemed in the first 12 months. Redemptions between one and five years of purchase forfeit the three most recent months of accrued interest. After five years, I bonds can be redeemed penalty-free. They continue earning interest for up to 30 years from issuance, at which point the final maturity halts further accumulation.
The tax treatment of I bonds mirrors Series EE bonds: federal income tax on accrued interest is deferred until redemption or final maturity, and interest is exempt from state and local taxes. The same educational expense exclusion that applies to EE bonds also applies to I bonds under qualifying conditions.
I bonds are particularly effective for emergency funds, long-term savings, and inflation-sensitive capital preservation. Their primary limitation is the purchase ceiling, which prevents large-scale deployment of capital. For investors seeking inflation protection on larger sums, TIPS (Treasury Inflation-Protected Securities) and TIPS-based ETFs held through a brokerage provide a scalable alternative, though without the purchase limit structure or the deferred tax treatment of I bonds.