I bought my first Series I Savings Bond in May 2022 when the rate hit 9.62%. That purchase earned more interest in six months than my savings account had earned all year. I bought another in November 2023 at 5.27%—less dramatic, but still better than what my bank was offering. The third time, in 2025, felt routine. The rate was 3.62%. I bought anyway.
The question isn’t whether I bonds were worth it in 2022 when inflation was spiking. It’s whether they’re worth it now, when rates have normalized, high-yield savings accounts are paying competitive rates, and the hype has worn off. The answer depends on three things: your timeline, your tax situation, and what else you’d do with that money.
The short answer
Series I Savings Bonds are U.S. Treasury securities that pay a composite rate adjusted every six months based on inflation. You can buy up to $10,000 per year through TreasuryDirect, you must hold them at least one year, and you forfeit three months of interest if you cash out before five years. The current rate (as of November 2025–April 2026) is 4.28%.
Whether they’re worth it depends on whether you need inflation protection on money you won’t touch for 12+ months, whether you qualify for the education tax exemption, and whether you’re willing to give up liquidity for certainty.
How the composite rate actually works
I bonds don’t pay a fixed interest rate. They pay a composite rate made up of two parts: a fixed rate (set when you buy, locked in for the life of the bond) and an inflation rate (reset every six months based on changes in the Consumer Price Index for All Urban Consumers, or CPI-U).
The Treasury publishes the formula on TreasuryDirect:
Composite rate = Fixed rate + (2 × Inflation rate) + (Fixed rate × Inflation rate)
For bonds issued in the past few years, the fixed rate has ranged from 0.00% to 1.30%, which means nearly all the return comes from the inflation adjustment. Here’s what that looked like:
- May 2022: 9.62% (fixed: 0.00%, inflation component: 9.62%)
- November 2023: 5.27% (fixed: 0.90%, inflation component: 4.30%)
- May 2025: 3.62% (fixed: 1.30%, inflation component: 2.26%)
- Current (November 2025–April 2026): 4.28%
The May 2022 rate was the outlier. Current rates reflect moderating inflation as measured by CPI-U. The rate resets every May and November, so what you earn next year depends on inflation between now and then.
What $1,000 actually earned: real scenarios
Let’s say you bought a $1,000 I bond in May 2023 (rate: 4.30%, rising to 5.27% six months later). Here’s what it would have earned through August 2026, compared to a high-yield savings account at 4.5% and a low-cost S&P 500 index fund.
| Investment | Value (Aug 2026) | Total gain |
|---|---|---|
| I bond (May 2023 purchase) | ~$1,131 | $131 |
| HYSA at 4.5% | ~$1,147 | $147 |
| S&P 500 index fund | ~$1,210* | $210 |
*Assumes ~6.5% annualized return; equity returns vary and are not predictable.
The I bond underperformed the HYSA because inflation slowed and the variable rate dropped. It underperformed equities because stocks had a decent run. But the I bond’s principal was never at risk—the equity fund could have been down 15% instead.
If you’d bought in May 2022 at 9.62% and held through August 2026, you’d have earned roughly $220—better than the HYSA, still behind a strong equity year, with zero volatility.
I bonds are inflation-protected savings, not growth investments. You’re trading upside for certainty.
The tax advantages (and when they actually matter)
This is where I bonds become more interesting than the rate alone suggests.
I bonds are exempt from state and local taxes. You only pay federal income tax on the interest, and you don’t pay it until you redeem the bond (or until it matures at 30 years). That’s tax deferral—you earn interest on money that would otherwise have gone to taxes.
If you live in California or New York or another high-tax state, that state exemption is worth 5–10% of your interest depending on your bracket. A 4% I bond in a state with 6% income tax is effectively yielding more than a 4% taxable account.
But the bigger benefit is the education savings bond program. If you use I bond proceeds to pay for qualified higher education expenses (tuition and fees, not room and board), and you meet income limits, the interest may be completely exempt from federal tax under IRS Publication 970.
The rules:
- You must have purchased the bond after age 24 (or it must be in your name, not your child’s)
- You must use the proceeds in the same tax year you redeem the bond
- Your modified adjusted gross income must be below the phaseout threshold (which adjusts annually)
- You must pay qualified education expenses for yourself, your spouse, or a dependent
For 2025, the phaseout begins at $98,200 (single) and $154,800 (married filing jointly). Above those thresholds, the exclusion phases out.
This changes the math. A 4% I bond that’s tax-free beats a 5% taxable HYSA if you’re in the 22% federal bracket or higher and you’re using the money for education. It’s not a loophole—it’s an explicit Treasury incentive to save for college.
I didn’t know about this when I bought my first I bond. I learned about it later and realized I’d accidentally set up a tax-advantaged education fund. If you have kids heading to college in 5–10 years and you’re near but not over the income limits, this is one of the few ways to get tax-free growth on a completely safe asset.
I am not a tax advisor. If you’re buying I bonds for education expenses, read IRS Pub 970 and talk to a tax professional before you assume you qualify.
I bonds vs. TIPS: which inflation hedge fits better?
I bonds aren’t the only Treasury security that protects against inflation. Treasury Inflation-Protected Securities (TIPS) do the same thing, but the mechanics are different.
TIPS are marketable securities—you can buy and sell them anytime. The principal adjusts with inflation (based on CPI-U, same as I bonds), and you earn a fixed interest rate on that adjusted principal. When TIPS mature, you get back the higher of the inflation-adjusted principal or the original amount.
I bonds are non-marketable—you can’t sell them to another investor. You redeem them directly with the Treasury. The rate adjusts every six months, and you can’t access the money for a year.
Here’s the tradeoff:
| Feature | I Bonds | TIPS |
|---|---|---|
| Liquidity | Locked for 1 year; 3-month penalty before 5 years | Can sell anytime (but price fluctuates) |
| Purchase limit | $10,000/year | No limit |
| Where to buy | TreasuryDirect only | TreasuryDirect or brokerage |
| Inflation adjustment | Rate resets every 6 months | Principal adjusts with CPI; rate fixed |
| Interest payments | Accrues; paid at redemption | Paid semiannually |
| Price volatility | None (redeemed at face value + interest) | Yes (market price moves with interest rates) |
| Tax treatment | Federal tax deferred until redemption; state-exempt | Federal tax on annual interest + “phantom income” on principal adjustment; state-exempt |
TIPS are better if you want liquidity, you’re investing more than $10,000, or you want semiannual income. But TIPS prices fall when interest rates rise, which means you can lose money if you sell before maturity. I bonds don’t have that problem—you always get your principal back.
I bonds are better if you want simplicity, certainty, and tax deferral. You’re locked in, but you’re protected from both inflation and interest-rate risk.
I haven’t bought TIPS. I like knowing exactly what I’ll get back. If I wanted liquidity and inflation protection, I’d use a TIPS fund, but then I’m back to price volatility. For the money I’m parking in Treasuries, I want boring.
The restrictions you need to know up front
You can buy up to $10,000 per calendar year in electronic I bonds through TreasuryDirect. You can buy an additional $5,000 in paper bonds using your tax refund, but most people skip that step. The $10,000 cap is firm.
You cannot redeem them for one year. Not at 11 months. Not in an emergency. The money is locked.
If you redeem before five years, you forfeit the last three months of interest. Here’s the math:
Say you bought a $1,000 I bond in May 2024 and need the money in May 2026 (two years later). The average rate over those two years was around 4%. You earned roughly $82. The penalty is three months of interest—about $10. You walk away with $1,072, not $1,082.
That’s the penalty. You still earned interest; you just gave back the last quarter’s worth. After five years, there’s no penalty.
Does rate-timing matter, or is it overthinking?
I’ve bought I bonds in three different rate environments: 9.62%, 5.27%, and 3.62%. I didn’t plan it that way—I bought when I had the cash. But some people try to time purchases around rate resets, either by waiting for a higher announced rate or by staggering purchases to capture different six-month cycles.
The question is whether rate-timing produces meaningfully better returns, or whether it’s complexity for complexity’s sake.
Here’s the reality: you can’t predict future inflation, which means you can’t predict future I bond rates. The rate announced in May applies to bonds purchased between May and October, but that rate only lasts for the first six months you hold the bond. After that, your bond gets the new rate just like everyone else’s.
Say you waited for a 5% rate instead of buying at 4%. You locked in 5% for six months. But if inflation drops and the next rate is 3%, your “better” purchase is now earning the same 3% as everyone else’s. Over a five-year hold, the timing advantage disappears.
Staggered purchases (buying $2,000 every other month instead of $10,000 in January) smooth out rate fluctuations, but they don’t improve returns unless you happen to buy more during high-rate periods. That’s luck, not strategy.
I stopped trying to time it. I buy once a year, in the same month, with money I’ve decided I don’t need. If the rate is high, great. If it’s mediocre, I’m still getting inflation protection and state-tax exemption. The five-year average rate matters more than the six-month entry rate, and I can’t control the five-year average.
If you’re buying I bonds, buy them when you have the cash and the conviction. Don’t wait for a “better” rate—you’re guessing.
So are they worth it? A decision framework
I bonds are worth it if:
- You have an emergency fund already (3–6 months of expenses in liquid savings)
- You have extra cash beyond that fund
- You won’t need this specific money for at least 12 months (ideally 5+ years)
- You want inflation protection without stock-market risk
- You’re saving for education expenses and might qualify for the tax exclusion
- You live in a high-tax state and value the state-tax exemption
I bonds are not worth it if:
- You don’t have a fully funded emergency fund yet (build that in a HYSA first)
- You might need the money in the next 12 months (you can’t access it)
- You’re investing for retirement 20+ years away (equities historically outpace inflation over long periods)
- You need liquidity and can’t tolerate the one-year lock (consider TIPS or a HYSA instead)
- You’re chasing last year’s 9% rate (that rate is gone and won’t return unless inflation spikes again)
I bought I bonds with money I’d otherwise leave in a savings account indefinitely—my “I probably won’t need this, but I’m not investing it in stocks either” money. They’re not part of my retirement accounts. They’re not my emergency fund. They’re the third-tier cash cushion, the education fund I didn’t know I was building, and the hedge against inflation I’m glad I have when CPI ticks up.
FAQ
What is the current I bond rate?
As of November 2025–April 2026, the composite rate is 4.28%. This rate resets in May 2026 based on the next six months of CPI-U data. You can check the current rate anytime at TreasuryDirect.gov.
How do I bonds compare to a high-yield savings account?
I bonds currently pay around 4.28% and adjust with inflation every six months, but you can’t access the money for a year and lose three months of interest if you cash out before five years. A high-yield savings account might pay 4–5% with no restrictions, but the rate isn’t guaranteed to track inflation and the interest is fully taxable at the state level. If you need liquidity, the HYSA wins. If you want inflation protection, state-tax exemption, and can lock the money away, I bonds win.
Can you lose money on I bonds?
You cannot lose principal. The Treasury guarantees your original investment. You will lose three months of interest if you redeem before five years, and you face opportunity cost—money in an I bond isn’t in the stock market. Over long periods, equities have historically outpaced inflation by a wider margin. But you can’t lose the money you put in.
Should I buy I bonds or TIPS?
I bonds if you want simplicity, no price volatility, and tax deferral until redemption. TIPS if you want liquidity, you’re investing more than $10,000, or you want semiannual interest payments. TIPS prices fluctuate with interest rates, so you can lose money if you sell before maturity. I bonds are redeemed at face value plus accrued interest—no market risk.
Do I pay state taxes on I bond interest?
No. I bonds are exempt from state and local income taxes. You pay federal income tax on the interest (either when you redeem the bond or annually if you elect to report it that way), but not state tax. If you live in a high-tax state, this exemption is worth 5–10% of your interest depending on your bracket.
What happens if inflation drops and the I bond rate falls?
The rate resets every six months. If inflation slows, your rate drops. The composite rate has a floor of 0.00%—it won’t go negative—but it can go very low. In a deflationary environment, your bond would stop earning meaningful interest, though your principal would still be safe. This is why I bonds are savings vehicles, not long-term growth investments.
Does the education tax exclusion apply to 529 plan withdrawals?
No. The education savings bond exclusion only applies when you use I bond proceeds to pay qualified education expenses directly, or when you roll the proceeds into a 529 or Coverdell ESA in the same tax year. It doesn’t apply to general 529 withdrawals. The IRS covers the details in Publication 970.
I bonds are a conservative tool for people who want inflation protection on cash they don’t need soon. They’re not a wealth-building strategy. They’re not a substitute for retirement investing. They’re the thing you buy when you have extra savings, you’re worried about inflation, and you want certainty without stock-market risk. If that describes your situation—and especially if you’re saving for education and qualify for the tax exclusion—they’re worth it. If it doesn’t, a high-yield savings account or a low-cost index fund probably fits better.
I’ll keep buying them. Not because the rate is exciting, but because I like having money I know will be there, adjusted for inflation, with no drama. That’s worth more to me than chasing an extra percentage point I might lose in a correction.
About the author
Quinn Sutherland has been writing about personal finance and investing since 2019. This article reflects personal experience and publicly available information from the U.S. Treasury and IRS. Quinn is not a financial advisor, tax professional, or securities broker.
This is not financial advice. I’m not a financial advisor. I’m someone who bought I bonds with my own money and is explaining how they work. Your situation is different from mine. If you’re not sure whether I bonds fit your goals, talk to a financial professional before you buy.