Guide to I bonds (Series I savings bonds)
Editorial staff, J.P. Morgan Wealth Management
- Series I savings bonds – commonly known as I bonds – protect your savings from inflation by offering a combination of a fixed interest rate and a variable rate that adjusts every six months based on inflation.
- You can buy up to $10,000 in I bonds per year through TreasuryDirect, with a minimum holding period of one year and a three-month interest penalty if cashed out before five years.
- I bonds offer certain tax advantages, including exemption from state and local income tax on the interest earned and the potential for interest to be excluded from federal income tax if used for qualified higher education expenses (assuming certain other requirements are met).
Series I savings bonds, also known as I bonds, have grown in popularity as a safe, inflation-protected place to put your money. With inflation eroding the value of cash, I bonds offer a reassuring option by paying interest that rises and falls with inflation. They’re issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government, making them a generally low risk investment.
Below, we break down exactly what I bonds are, why they’re unique and how to buy I bonds step-by-step. We’ll also cover key rules, benefits and potential drawbacks so you can decide if I bonds are the right choice for your savings strategy.
What are I bonds?
An I bond is a simple, low-risk fixed income product designed to help your money’s growth keep up with inflation. Unlike marketable Treasury bonds, I bonds can’t be bought or sold in the open market – you buy and redeem them directly from the U.S. Treasury.
This direct-sale feature doesn’t usually inconvenience most investors but rather helps safeguard against fluctuation in the bond’s value (it always stays at face value, plus accrued interest) and the risk of market price changes. Essentially, I bonds give you a predictable, inflation-adjusted return on your investment, making them a reassuring choice for preserving wealth in uncertain economic times.
Key things to keep in mind about I bonds
- I bonds are U.S. government-issued savings bonds specifically designed to protect your money from inflation. They were once available as paper certificates, but today, I bonds are primarily sold electronically via the U.S. Treasury’s online platform.
- An I bond’s interest rate adjusts with inflation, which helps your money maintain its purchasing power over time. In practical terms, this means the bond’s rate is a combination of a fixed rate (which stays the same for the life of the bond) and a variable rate, which changes every six months based on inflation.
- Because they’re backed by the U.S. government, I bonds are considered relatively low-risk investments. In addition to protection against the loss of your principal, your interest will not fall below zero, even in the event of deflation. That said, it’s important to keep in mind that all investments come with some level of risk, and I bonds are no different.
- I bonds earn interest for up to 30 years, after which they stop accumulating new interest.
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How do I bonds work?
I bonds have a two-part interest rate structure designed to protect against inflation. Every I bond earns interest based on:
- A fixed rate: Determined at the time of purchase, the fixed rate remains the same for the life of the bond (up to 30 years). This is the base rate of return you’ll get, independent of what happens with inflation.
- An inflation-linked rate: The inflation-linked rate, which changes every six months (in May and November), is based on the Consumer Price Index (CPI-U), a measurement tool for inflation. This “variable portion” is what adjusts your bond’s return to keep pace with inflation.
Pros and cons of I bonds
Pros of I bonds:
Principal protection: I bonds are backed by the U.S. government, so your principal is guaranteed by the government’s full faith and credit. Because of this there’s less risk of default or loss of your money, which is a huge benefit for conservative investors or those seeking a stable place to park emergency funds. While I bonds are a low risk investment option, it’s important to keep in mind that like with any investment, there’s some level of risk.
Inflation-adjusted returns: One significant selling point is that I bonds help shield your savings from inflation. Whenever inflation rises, the bond’s rate rises too, potentially alleviating the risk that your money’s purchasing power will shrink. This feature makes I bonds inflation-protected – a rare benefit not offered by standard savings accounts or most certificates of deposit (CDs). Over 30 years, an I bond’s value will roughly keep pace with consumer prices, which can preserve and grow long-term savings in real terms.
Competitive yields in times of high inflation: In periods of high inflation, I bonds can offer attractive interest rates. Even in more normal conditions, I bond rates often beat typical savings account rates because of inflation.
Tax advantages: I bonds have certain investor-friendly tax features. You don’t pay state or local income tax on the interest they earn, which may save you money, especially if you live in a state with a high income tax rate. Additionally, you can choose to defer reporting the interest for U.S. federal income tax purposes until the year in which you actually receive it (generally, when you cash in the bond or when it matures in 30 years).
No recurring fees or market fluctuations: Buying and holding I bonds costs you nothing in fees. Since they’re not traded, their value doesn’t rise or fall with market sentiment. You won’t see your I bond lose value on a bad market day – they just steadily accrue interest. This stability and simplicity (set it and forget it) can be comforting for those who don’t want to manage volatility.
Cons of I bonds:
Annual purchase limits: You can only buy $10,000 per person per year, which can limit how much you can invest at once.
Liquidity constraints (the ability to access your money): I bonds lock up your funds for a minimum of one year, meaning you can’t cash out at all in the first 12 months. Because of this, these bonds aren’t suitable for very short-term needs or emergency funds you might need immediately. Additionally, if you redeem an I bond within the first five years, you will forfeit the last three months of interest as an early withdrawal penalty.
For example: If you cash out after 18 months, you’ll get back 15 months’ worth of interest instead of 18. After five years, there’s no penalty – you can redeem anytime and keep all accrued interest. The combination of the “one-year lockout” and the “five-year partial penalty” means I bonds are best for medium- to long-term savings goals (e.g., you should be confident you won’t need that money for at least a year or, ideally, five years or more).
Variable interest rate: The interest rate resets every six months, meaning returns can be unpredictable. If inflation drops, your bond’s yield will decrease.
No regular interest payouts: Unlike some investments, I bonds don’t pay out interest periodically. You only realize the interest when you redeem the bond, which means you can’t use the interest income until you cash in the bond (unless you choose to report interest annually for tax purposes, which most people don’t). Even if you choose to report the interest on your taxes, you still won’t receive the cash at that time.
Online purchase process: I bonds must be bought and managed through TreasuryDirect, which some may find less user-friendly than working with a bank or a brokerage platform.
How many I bonds can you buy?
You can purchase up to $10,000 in electronic I bonds per person, per year, through TreasuryDirect. This limit is tied to your Social Security number or Taxpayer Identification Number, meaning each individual can buy their own allotment. For example, a married couple could each buy $10,000, totaling $20,000 per household annually.
In the past, an additional $5,000 in paper I bonds could be purchased via tax refunds, but this option was discontinued in 2025. However, you can purchase I bonds as gifts for others, which don’t count toward your personal limit but count toward the recipient’s $10,000 annual cap.
The minimum purchase for an I bond is $25, and you can buy in any exact amount beyond that (e.g., $100.50 or $3,572.45). There are no fees or transaction costs, so every dollar goes toward your bond's value. So in summary:
- Purchase limits for I bonds are $10,000 per person, per year (for electronic I bonds).
- There’s no overall holding limit – meaning you can accumulate I bonds over multiple years.
- There’s a $25 minimum purchase amount, with flexibility to buy in more precise amounts if you choose.
- These limits make I bonds accessible for all savers while allowing long-term accumulation for those looking to preserve wealth and hedge against inflation.
How are I bonds taxed?
I bonds offer certain investor-friendly tax features. While you should speak to your tax professional about the tax treatment of I bonds, here are some of the key potential tax benefits.
No state or local tax: Interest earned on I bonds is exempt from state and local income taxes. This may be a big perk, especially if you live in a state with high income tax rates. This advantage could effectively boost your net return compared to a similar investment that doesn’t benefit from this exemption.
Deferred federal income tax: I bond interest is subject to federal income tax, but you don’t have to report the interest each year. By default, federal income tax on I bond interest is deferred until you actually receive the interest (generally, when you cash in the bond or it matures in 30 years). In other words, as your interest accrues, you’re not required to report it annually on your federal income tax return (unless you choose to opt into annual reporting). When you cash the bond or it matures and you receive the interest payment, you’ll receive an IRS Form 1099-INT for the interest earned and report it on your federal income tax return for that year. Most people tend to find it simpler and more beneficial to defer the taxes until redemption, but this may depend on your individual circumstances.
Potential higher education benefits: If certain requirements are met and you use the interest from your I bonds for qualified higher education expenses (for yourself, your spouse or your dependents), you may be able to exclude that interest from federal income tax entirely. This benefit is part of the Education Savings Bond Program.
No early withdrawal tax penalty: Unlike IRAs or 401(k)s – there’s no additional tax penalty for redeeming I bonds “early” (aside from the three-month interest penalty discussed earlier). You just pay federal income tax on the interest whenever you cash out, regardless of your age. This may provide greater flexibility to use the funds when needed without worrying about an extra tax penalty.
For example: Suppose you bought $5,000 in I bonds, and 10 years later you redeem them for $6,500 (meaning you earned $1,500 in interest). That $1,500 will be reported for federal income tax purposes in the year you redeem, and you’ll pay any federal income tax owed on that according to your income tax bracket. But none of that $1,500 is subject to state or local income tax, and if you meet certain requirements and used the interest for qualified higher education expenses, you might avoid federal income tax on it as well. Meanwhile, during those 10 years, you haven’t had to pay income tax on the interest as it accumulated.
How to purchase I bonds
Buying I bonds is a straightforward process, but it’s done directly through the U.S. Treasury’s platform rather than your bank or brokerage. As of 2025, I bonds are only available electronically, so the only way to purchase new I bonds is through the TreasuryDirect.govOpens overlay website (the U.S. Treasury’s online portal). The good news is there’s no commission or fee to buy I bonds, and setting up an account is free.
Steps for buying I bonds
- Create a TreasuryDirect account
- Visit TreasuryDirect.gov and register for a personal account.
- Provide your Social Security number, email and bank details.
- TreasuryDirect will issue you an account number (you’ll use this to log into your account instead of a username).
- Buy I bonds
- Log in and select “Buy Direct” and then “Series I Savings Bonds.”
- Choose your purchase amount (as mentioned above, you can choose a minimum of $25 or invest up to $10,000 per year).
- Link your bank account to fund the purchase of your I bonds.
- The I bonds will be issued electronically, usually by the next business day.
- Manage and redeem your I bonds
- I bonds appear in your TreasuryDirect account holdings.
- You can track their value and interest accrual anytime.
- Your minimum holding period for I bonds is one year (keep in mind, though, that redeeming them before five years results in a three-month interest penalty).
- To cash out your I bonds, use the "Redeem" function and funds will be deposited into your linked bank account within a few business days.
That’s it! The process is entirely online and is usually hassle-free. Just keep track of your TreasuryDirect login because that’s the only way to manage or redeem your I bonds in the future. If you ever forget your login info, TreasuryDirect has procedures to retrieve or reset it, but it can take time due to the security measures associated with purchasing Treasury securities.
Keep in mind that the steps to buy I bonds are subject to change, so visit TreasuryDirect for the most up to date instructions.
A strong and steady investment strategy
I bonds offer a secure, inflation-protected way to achieve low-risk growth, helping your money maintain its purchasing power over time. With government backing and tax advantages, they can be a smart choice for conservative investors, long-term savers or those looking to shield their cash from inflation.
If you’re considering I bonds, keep in mind key factors like the one-year minimum holding period, annual purchase limits and how they fit into your broader financial strategy. While I bonds can serve as a stable foundation for savings, integrating them into a well-balanced investment plan can further strengthen your financial future.
The bottom line
Not sure if I bonds are right for you? The investment team at J.P. Morgan Wealth Management can help you explore your options and build a strategy that aligns with your goals. Connect with a J.P. Morgan advisor today to create a plan tailored to your needs. It may also be beneficial to consult a tax professional before engaging in this transaction.
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Editorial staff, J.P. Morgan Wealth Management
