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What Are I Bonds?

Updated: May 02, 2022Written By: Richard LehmanReviewed By:

I bonds are securities issued by the US Treasury that pay interest comprised of a fixed rate plus a rate based on inflation. As of April 30, 2022, I Bonds are set to pay an annualized rate of around 9.60% until the next inflation reset in six months. Learn how I bonds work and how you can get them.

United States Treasury Savings Bonds

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I Bonds: Definition, Rates & Rules

I bonds are securities issued by the US Treasury. They are a form of savings bond and are related more to EE savings bonds than to traditional Treasury securities such as Bills, Notes, Bonds, and TIPS.

Series I Bond Rules & Terms

  • I Bonds are issued in 30-year durations with interest accruing monthly and paid semiannually.
  • The interest rate is adjusted every six months and has a fixed component plus a component pegged to inflation.
  • I Bonds can be redeemed at any time after the first 12 months but are subject to a penalty of 3-month’s interest if redeemed within the first five years.
  • I Bonds are available directly from the US Treasury and come in electronic form. When purchased in electronic form, they are available in any denomination to the penny.
  • I Bonds may also be purchased in paper form with money from your income tax refund. Paper bonds are sold in denominations of $50, $100, $200, $500, or $1,000.

Who Can Buy I Bonds?

  • Any individual with a social security number that is either a U.S. Citizen, U.S. resident, or civilian employee of the U.S.
  • Individuals under age 18 cannot purchase I Bonds but are permitted to own them if a parent or guardian purchases them on their behalf.
  • Trusts, estates, corporations, and partnerships can purchase I Bonds electronically. Corporations and partnerships cannot purchase paper versions.
  • Establishing a TreasuryDirect account is required for all electronic purchases.

I Bond Purchase Limits

  • Electronic purchases are limited to $10,000 per social security number per year.
  • Paper purchases are limited to $5,000 and can only be purchased with money from a tax refund.

I Bond Rates

I Bonds pay interest semiannually and the rate for each six-month period is derived by adding a fixed base rate to a rate that adjusts with inflation. The combined annual rate that I Bonds have been paying for the period November 2021 through April 2022 has been 7.12%. According to Forbes, beginning May 2, 2022, the annual rate will change to 9.62%.

Series I Bond Maturity

I Bonds mature in 30 years. If redeemed before 5 years, they are subject to a 3-month interest penalty. They cannot be redeemed during the first 12 months.

I Bond Taxation

I Bond interest is taxable as income at the federal level but is exempt from state and local taxes. Since they are always priced at face value, there are no capital gains or losses when redeemed.

Taxes may be waived under certain circumstances if the proceeds are used for higher education.

How I Bonds Work

I Bonds are purchased directly from the U.S. Treasury either in electronic form or in paper form using your tax refund. Interest accrues monthly and is paid semiannually.

The rate of interest is adjusted every six months and is calculated by adding a fixed rate to an additional rate based on inflation.

I Bonds do not trade on a secondary market like traditional U.S. Treasury Bonds. Therefore, they will always be valued at face value (the value at purchase) and will not change in value with changes in interest rates.

How Long Can One Hold an I Bond?

I Bonds can be held for up to 30 years.

Series I Bond Interest Rates

Beginning May 2, 2022, I Bonds will pay an annualized interest rate of 9.62% and will reset again in November 2022.

I Bonds vs. EE Bonds

I Bonds are similar in nature to EE savings Bonds. Their price, denominations, maximum purchase amount, interest periods, maturity, redemption rules, and early redemption penalty are the same.

There are only two differences between EE Bonds and I Bonds:

  • EE Bonds are no longer available in paper form.
  • EE Bonds (issued after 2005) earn a fixed rate of return. I Bond returns vary with the inflation component in the interest rate. The fixed rate return on a I bond is less than that of a EE bond and, in 2022 is 0%.

I Bonds vs. TIPS

I bonds and TIPS (Treasury Inflation-Protected Securities) are both Treasury securities that are indexed in some way to inflation but the two securities are different in a number of ways. For I Bonds, the rate of interest paid is adjusted for inflation while the face value remains constant. For TIPS, the principal amount is adjusted for inflation while the interest rate remains fixed.

I Bonds and TIPS are both backed by the U.S. Treasury and pay interest semiannually. But TIPS differ from I Bonds in the following ways:

  • TIPS are marketable. Therefore, they are not only available through TreasuryDirect but can also be bought and sold through broker-dealers.
  • TIPS can vary in market price.
  • TIPS are issued in maturities of 5, 10, and 30 years.
  • TIPS have an interest rate that's determined at the initial auction
  • TIPS are sold in increments of $100 and the minimum purchase is $100.

Whether I Bonds will be better for the investor than TIPS will depend on how inflation changes during the bond’s life, when the investor buys, sells, or redeems them, and the difference in interest rates between them.

Pros & Cons of Investing In I Bonds

I Bonds offer investors one of the few securities anywhere that pay interest partially pegged to inflation. Here are some of the key pros and cons when evaluating them.


  • Interest is pegged to inflation
  • I Bonds are backed by the U.S. Treasury
  • I Bonds are exempt from state and local taxes


  • I Bonds cannot be redeemed in the first 12 months
  • There are redemption penalties in the first 5 years
  • There are limits to the amount anyone can purchase

How & Where To Buy I Bonds

I bonds are purchased directly from the U.S. Treasury, either online from TreasuryDirect.gov in electronic form, or in paper form with money from your income tax refund.

Are I Bonds a Good Investment?

I bonds are a viable investment or savings option, especially in an inflationary environment. They have essentially no credit risk and will generally keep up with inflation. In addition, there are some tax benefits.

For risk-averse investors seeking safe returns that will likely keep up with inflation, I Bonds are a solid investment option. For investors looking to actually beat inflation, I Bonds may not be quite as attractive. Moreover, they can only be purchased in limited amounts, so for many investors, they would represent only a partial investment option at best.

This article was written by

Richard Lehman profile picture
Adjunct Finance Professor at Cal Poly, UCLA, and UC Berkeley (19 yrs), author of three investment books, Wall Street veteran, and founder of Informed Assets, PBC. Helping people understand the financial implications of climate change and alternative investments.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

Damon Judd profile picture
I bought my first $3000 before April 30 so will get the 7.12% rate for 6 months and now the 9.6% will apply for the next 6 months. I am going to deposit the remaining $7k now to take advantage of the higher rate, even though I understand it could drop below 7% in November when it next adjusts. With inflation still climbing into May I am not too worried about the inflation rate dropping that quickly because I think we will have high inflation for a while.
Not sure what's up with I-bonds. I made a $10,000 purchase on Dec 1, 2021 at a 7.12% rate. The bond value increased by $60 on Feb 1 and by $52 on May 1. After 6 months, the $10,000 has increased by 1.15%. I'm not a math expert, but I'm pretty sure that is not a 7.12% annualized rate.
Richard Lehman profile picture
@Tanuge A monthly accrual of interest of around $58-60 per month would be consistent with a 7% return. The bonds do not pay quarterly, so it is likely that what you see is a monthly accrual and that there are similar accruals for the months in between as well.
@Richard Lehman Thanks for the response; I actually mis-typed the number of months I've had it, which is 5 months, not 6. It still seems light though.

A 7.12% rate paid monthly would be just over $59/ month so after 5 months it should be at $10,296 (the balance on the 12/1/2021 bond is currently $10,115). I actually didn't think it would change at all until after 6 months, so I'd be less confused if it was still at $10,000 flat. I assumed that the interest would begin accruing at the time of purchase.

Guess I'll wait until after the full 6 before I do anything else. Bet you won't be surprised to find out that the Treasury Direct customer service dept. hasn't exactly sprung into action to clear it up for me.
@Tanuge Seems to me I read something in Treasury Direct that said although the interest is 'paid' monthly they automatically deduct the 3 months interest that would be forfeited if you cashed it out too soon from the value displayed.
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