I-Bonds

By Ryan Repko, CFP®

Series I Savings Bonds or “I-Bonds” for short, are designed to offer inflation protection to investors by providing a return that is made up of a fixed base rate, plus adjustments for inflation. With inflation on everyone’s minds recently, I have noticed a lot of renewed interest in I-Bonds, but I have found many people aren’t really sure how they work.

I-Bonds provide a fixed rate to investors, which is set by the government for all bonds issued over a certain period. This rate will not change over the life of the bond. In addition to this fixed rate, I-Bond investors receive an interest rate equal to the rate of inflation, as set by the government every six months. The government bases this interest rate on the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy. This rate changes frequently, which is what makes I-Bonds so special, as they will adjust to whatever inflation happens to be.

I-Bonds are considered a very safe investment, but for that reason the fixed rate component of I-Bonds is usually very low, and has been 0.9% since November of 2025. The semi-annual inflation rate is currently 1.67% which means the composite annual interest rate for the bonds purchased over that period (and bonds purchased right now) is 4.26%.

Interest on I-Bonds accrues semi-annually. Every six months the government will look at your bond principal value and provide you with an interest payment equal to the base rate plus inflation rate for that time period. This creates a new principal value that is then used to calculate the next interest payment. I-Bond interest payments are not subject to state or local taxes, but are subject to Federal income taxes. You can choose whether to pay those taxes each year, or all at once when you sell the bond or the bond matures.

Eventually investors will want to cash in their I-Bonds, which they can do in as little as 12 months. However, if you cash the bonds in before they are 5 years old, you lose the last three months of interest as a penalty. I-Bonds can be held for their maximum term of 30 years. Individuals can buy a maximum of $10,000 in I-Bonds each year. This applies to each member of a couple, so couples can buy $20,000 each year. If you are thinking about investing in I-Bonds but aren’t sure if they are right for you, you may want to talk to a financial advisor.

Ryan Repko is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.