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What Are I Bonds? How Do You Buy Them?

When the prices of goods and services go up, it can be hard to know where to invest your money. Even the interest rates on high-yield savings accounts don’t usually keep pace with inflation. Stocks and other investments can offer greater returns – but they are riskier. 

If you’re looking for a place to invest that’s both low-risk and can keep pace with inflation, Series I savings bonds (aka I bonds) may be a convenient and safe option. 

Read on to learn more about how I bonds work, when they make sense and how you can take advantage of them.

Understanding Series I Savings Bonds

I bonds are U.S. Treasury savings bonds. They are safe, high-return investments that hedge against inflation by offering a variable interest rate linked to inflation. Unlike bank savings accounts and fixed-rate investments that don’t adjust for inflation, the interest earned on an I bond goes up when prices are up and down when prices fall. 

I bonds can help you earn money when everyday prices go up and serve as a hedge against inflation.

How do I bonds earn interest?

I bonds use a composite rate, which is a combination of two different interest rates: a fixed rate and a variable rate. The two rates determine the value of the bond when you cash it out. 

  • The fixed rate: The Treasury sets the fixed interest rate.
  • The variable rate: The variable rate adjusts every 6 months based on the consumer price index (CPI).

You earn interest on the principal every six months, and your money compounds over time.

When do I bonds mature?

I bonds fully mature (think: pay back the principal investment plus interest) 30 years after buying them, but you don’t have to hold on to them that long. You can cash them out after at least a year. 

If you cash them out before 5 years, you’ll lose the previous 3 months of interest. If you cash out after 5 years, you won’t have to worry about a financial penalty.

How are I bonds taxed?

Because a bond is an investment product, when you cash it out, you may need to pay income taxes on the money you earn. I bonds are subject to federal income tax – not state or local taxes. Compared to other investments, you’ll owe less on your tax returns. By the way, you can avoid paying taxes on I bonds if you use them for approved education-related expenses. 

Let’s say your income tax rate is 20%, and you buy an I bond for $1,000 with an average annual interest rate of 6%. After 5 years, you cash out the bond for $1,343.92. But hold up, after you pay your income taxes, you’ll have $1,247.62 left. 

If you decided to use your earnings to pay for higher education, you could claim an education exclusion and keep the entire $1,343.92.

Can I bonds lose money?

I bonds can’t lose money because they are government-backed bonds. When inflation is low, I bonds may not earn as much interest as other investments, but you’ll never end up with less money than you originally invested. 

Are I Bonds a Good Investment?

I bonds can be a valuable investment, especially if your investment risk tolerance is low. I bonds can keep your money safe while keeping pace with inflation. 

This is why I bonds are popular with retirees and soon-to-be retirees. They diversify their portfolios and keep their hard-earned savings from losing value during a market downturn. 

But here’s another way you can use them. 

Let’s say you want to buy a home in 5 years, and a relative gifts you $10,000 to put toward a down payment. I bonds can be a great place to set the money aside and have it earn interest until you’re ready to buy. If inflation is high, the money will likely earn more interest than it would in a savings account or CD.

Assuming an average annual interest rate of 4%, if you cashed out your bond in 5 years, you’d have an extra $1,576.76 to put toward your down payment.

How Do You Purchase I Bonds?

You can buy electronic I bonds on and paper I bonds through your federal income tax refund.

You can buy electronic I bonds starting at $25. They are sold at face value and can be purchased in “any amount to the penny.” You can buy paper I bonds at $50, $100, $200, $500 and $1,000 denominations.[1]

Are there limits to buying I bonds?

The limits on I bonds depend on the type of I bond you’re buying.

  • Electronic I bonds: There is a $10,000 per person limit within a calendar year for electronic bonds.[1]
  • Paper I bonds: You can purchase a maximum of $5,000 in paper I bonds within a calendar year.[1]

While there is a $10,000 purchase limit on electronic I bonds per calendar year, you can buy another $5,000 in paper I bonds through your federal tax refund, giving you a total of $15,000 in I bonds.

Can you give I bonds as gifts?

I bonds can be given as gifts to anyone, including family members and friends. You can give them to children under 18, but they will need a parent or guardian to set up a custodial account in their name.

I Bonds vs. Other Investments

Of course, I bonds aren’t the only way to park your money into bonds. Other investment products include EE savings bonds or EE bonds, Treasury inflation-protected securities (TIPS) and bond exchange-traded funds (ETFs). 

Here’s a quick rundown on how each one works and compares to I bonds:

EE bonds

EE bonds are U.S. savings bonds with fixed interest rates. Unlike I bonds, EE bonds don’t adjust for inflation. They earn a fixed interest rate and double in value after 20 years.[2]


Treasury inflation-protected securities are also inflation-tracked bonds. TIPS are sold on the secondary market and traded by investors and investment funds. Their minimum purchase price is $100, but you can purchase up to $10 million in TIPS.[3]


A bond ETF is a mutual fund made up of a variety of bonds and is traded on major stock exchanges. Depending on the bond ETF, the fund may include a variety of government bonds or a mix of government-backed and corporate bonds.

Bond ETFs have greater liquidity; you buy and sell them like stocks. But they are volatile, so they are riskier than I bonds.

Pros and Cons of I Bonds

PROS Pros of I Bonds👍

Easy to buy and gift

You can buy electronic I bonds (which cost less than Treasury bills and other government-backed investments) on TreasuryDirect’s website. The TreasuryDirect website lets you purchase I bonds electronically and give them out as gifts.

Keep pace with inflation

Because I bonds are linked to inflation, they can be a great way to protect your money from losing value.

Education benefit

You can avoid paying federal taxes on I bonds if you use the money to cover approved education expenses.

CONS Cons of I Bonds👎

Limited liquidity

Unlike stocks and other investments, you can only cash out I bonds after a year. If you cash out before 5 years, you’ll lose 3 months’ worth of interest. And it takes 30 years for them to fully mature.

Lose value when inflation is low

I bonds don’t lose value, but the interest you earn drops when inflation is low.

Bond, I Bond

With inflation spiking, you should want to do more than keep your money safe. You should want it to thrive – and it can with I bonds. 

If time is on your side (think: don’t park your emergency fund into I bonds), I bonds are a relatively safe and convenient way to save, invest and earn interest protected from the ravages of inflation.

The Short Version

  • Series I savings bonds (aka I bonds) are relatively safe, inflation-protected U.S. Treasury savings bonds
  • I bonds use a composite rate – a combination of a fixed rate and a variable rate – to determine the value of the bond when it’s cashed out
  • Because a bond is an investment product, when you cash it out, you may need to pay income taxes on the money you earn
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  1. “Series I Savings Bonds.” Retrieved September 2022 from

  2. “Series EE Savings Bonds.” Retrieved September 2022 from

  3. “Treasury Inflation-Protected Securities (TIPS).” Retrieved September 2022 from

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