About iBonds

Everything you need to know about US Treasury Series I Savings Bonds and how they protect your savings from inflation.

What is an iBond?

Series I savings bonds (iBonds) are inflation-protected U.S. government savings bonds issued by the Treasury Department. They are designed to protect your investment from inflation by adjusting the interest rate every six months based on changes in the Consumer Price Index (CPI).

iBonds earn interest for up to 30 years, and the interest is exempt from state and local taxes. Federal taxes can be deferred until you redeem the bond or it stops earning interest after 30 years.

Key Benefits:

  • Protection against inflation
  • Backed by the full faith and credit of the U.S. government
  • No risk of losing principal
  • Tax advantages (no state/local taxes)

How Interest Rates are Calculated

iBond interest rates consist of two components that are combined to create a composite rate:

Fixed Rate

Set when you buy the bond and remains the same for the life of the bond. This rate is determined by the Treasury and announced every May and November.

Variable Inflation Rate

Changes every six months based on the Consumer Price Index for All Urban Consumers (CPI-U). This rate adjusts to reflect current inflation.

Composite Rate Formula:

Composite Rate = Fixed Rate + (2 × Inflation Rate) + (Fixed Rate × Inflation Rate)

The composite rate is recalculated every six months and cannot go below 0.00%.

Purchase and Holding Limits

Purchase Limits

  • Electronic iBonds: $10,000 per person per calendar year
  • Paper iBonds: $5,000 per person per calendar year (purchased with tax refund)
  • Minimum Purchase: $25 for electronic, $50 for paper

Holding Requirements

  • Minimum holding period: 12 months (cannot redeem before)
  • Penalty period: First 5 years (forfeit 3 months interest)
  • Maximum term: 30 years (stops earning interest after)

Early Redemption Penalty

If you redeem your iBond before holding it for 5 years, you'll forfeit the last 3 months of interest earned. This penalty is designed to encourage longer-term holding.

How the Penalty Works:

  • • The penalty is exactly 3 months of interest
  • • It's deducted from the total interest earned, not the principal
  • • After 5 years, there is no penalty for redemption
  • • The penalty cannot reduce your bond value below the original purchase price

Example:

If you purchased a $1,000 iBond and earned $100 in interest over 3 years, then redeemed it, you would receive $1,075 ($1,000 principal + $100 interest - $25 penalty for 3 months).

Tax Information

Federal Taxes

Interest is subject to federal income tax but can be deferred until redemption or final maturity (30 years).

State & Local Taxes

iBond interest is exempt from state and local income taxes, making them especially attractive for high-tax states.

Education Tax Benefits

Interest may be tax-free if used for qualified education expenses and you meet income requirements.