Series I Bonds


One type of investment offered by the U.S. Treasury is often forgotten—I Bonds. When I was young, my parents bought U.S. Treasury Series E (purchased at a deep discount) or H Bonds (purchased at face value) for me. I bet someone in your family owned them, too. I cashed in some of them to purchase an open-hole flute when I was in high school and more to purchase a wedding ring for my fiancé a few years later.

Series I bonds are drawing a lot of attention lately because those issued from May through October 2022 offer a composite rate of 9.62%. Especially for those living on fixed incomes, that rate is super attractive!

Here are a few of the parameters from the website[i]:


An article in Kiplinger by Lisa Gerstner (9-1-22) answers a few common questions[ii]:

How is the interest rate determined? 

“The composite rate has two parts: a fixed rate, which remains the same for the life of the bond, and an inflation rate, which is based on the consumer price index. Each May and November, the U.S. Treasury Department announces a new fixed rate and inflation rate that apply to bonds issued during the following six months. The inflation rate changes every six months from the bond’s issue date. If your bond is issued in October 2022, for example, the current inflation rate will apply through March 2023. (Note that I bonds are issued the next business day after you purchase them—so if you wait until the last day of October to buy a bond, for example, it will have a November issue date.) The fixed rate for I bonds issued from May through October 2022 is 0%.”

How does interest accrue? 

“The bond earns interest monthly from the first day of the month of the issue date, and interest is compounded semiannually. Interest is added to the bond’s principal value. You can’t redeem a I bond in the first year, and if you cash it in before five years have passed, you forfeit the most recent three months of interest. If you check your bond’s value at within the first five years of owning it, the amount you’ll see will have the three-month penalty subtracted from it. Consequently, when you buy a new bond, interest does not show until the first day of the fourth month following the issue month. If your bond has an October 2022 issue date, for example, interest is first posted in February 2023.” There is no interest penalty for cashing in I bonds after five years.

How much can I buy? Is there a market for I bonds?

“An individual can buy up to $10,000 per calendar year in electronic bonds through In addition, you can buy up to $5,000 each year in paper bonds with your tax refund (for those who are married filing jointly, the limit is $5,000 per couple).” Please note that I bonds cannot be purchased in a company retirement plan account or an IRA. They may be purchased in taxable accounts/registrations only.

There is no secondary market for trading I bonds, meaning you cannot resell them; you must cash them out directly with the U.S. government. Electronic I bonds can be redeemed via the TreasuryDirect website. Paper bonds can be cashed in at a local bank.

How are I bonds taxed? 

“I bond interest is free of state and local income tax, and you can defer federal tax until you file a tax return for the year you cash in the bond, or it stops earning interest because it has reached final maturity (after 30 years), whichever comes first. You can also report the interest every year, which may be a smart choice if you’d rather avoid one large tax bill years down the road. If you use I bond proceeds to pay for certain higher-education expenses for yourself, your spouse, or your dependents, you may avoid federal tax. But you must meet several requirements to be eligible.” The owner of the bond is liable for the tax payments regardless of who purchased the bond. If you received a I bond as a gift, you are responsible for the tax payments.

What is the benefit of an I bond?

The chief benefit of I bonds is that they protect the purchasing power of your investment from inflation. When prices rise across the economy, they erode how much the same amount of dollars can buy, but safe investments like I bonds can help you maintain the value. Also, any security offered by the U.S. Treasury has nearly zero risk of default, and, as noted above, I bonds offer attractive tax benefits.

Are there other U.S. Savings Bonds?

There is another savings bond offered by the U.S. Treasury—Series EE Bonds. Whether you might prefer one over the other depends upon both the current interest rates and where you believe interest rates and inflation will trend in the future. The similarities and differences between Series EE and Series I bonds are listed below.[iii]

EE Bond and I Bond Similarities

  • Both EE bonds and I bonds are sold at face value, and they both earn interest monthly that is compounded semiannually for 30 years.
  • Both I bonds and EE bonds may be redeemed or cashed after 12 months. If cashed during the first five years, you forfeit three months of interest payments.
  • Minimum purchase amount is $25.
  • Both are exempt from state and local taxes and are completely tax exempt if used to pay for eligible higher education expenses.

EE Bond and I Bond Differences

  • The interest rate on EE bonds is fixed for the life of the bond while I bonds offer rates that are adjusted to protect from inflation.
  • EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds.
  • The annual maximum purchase amount for EE bonds is $10,000 per individual whereas you can purchase up to $15,000 in I bonds per year. ($10,000 plus $5,000, see above)

If interest rates and inflation are low, then EE bonds, with their guarantee to double in 20 years would perhaps be best. However, in a rising inflation scenario, I bond holders win.

How does a I Bond fit in my portfolio?

Those of you who are regular readers of my blogs understand asset allocation (see Asset Allocation = Investment Chili) and know that an investment portfolio needs the benefit of time—at least five years. Therefore, a I Bond, if held for at least five years, is an appropriate investment for the bond or fixed income portion of your taxable portfolio.

If you have trouble purchasing I bonds through the website, you can call TreasuryDirect at 844-284-2676, but given the interest in I-bonds, be prepared to wait on hold. If the number of callers in the queue becomes too great, an automated message may notify you that TreasuryDirect is no longer accepting calls for the day.

~Bev Bowers, CFP®




Legal Notice: This document is intended to be informational only. Beverly Bowers does not render legal, accounting, or tax advice. Please consult the appropriate legal, accounting, or tax advisor if you require such advice. The opinions expressed in this report are subject to change without notice. The information in this report is from sources believed to be reliable but are not guaranteed to be accurate or complete. All publication rights reserved. Use of this material is subject to the Copyright restrictions described on
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