I Bonds are U.S. government savings bonds that offer inflation-protected, guaranteed returns — currently 4.26% for bonds purchased through October 31, 2026. For investors holding cash in a high-yield savings account or money market fund, they’re worth a close look.
District Capital Management is a fee-only fiduciary financial planning firm based in Washington, DC, founded in 2013 by Alvin Carlos, CFP®, CFA. This guide covers how I Bonds work, the current rate and how it’s calculated, who they make sense for, and when you should consider alternatives — including an honest look at when I Bonds are not the right move.
Quick Take (Nov 2025 – Apr 2026 Issue Window)
- Composite Rate: 4.03% (includes a fixed rate of 0.90%, plus a semi-annual inflation adjustment of 1.56%)
- Fixed Rate: Locked in for the life of your bond (30 years)
- Inflation Rate: Resets every 6 months from your purchase month
- Where to Buy: TreasuryDirect.gov only (paper bonds via tax refund ended January 1, 2025)
- Annual Limit: $10,000 per person electronically; separate limits for each trust or business
- Liquidity Rules: No redemptions in the first 12 months; cashing out within 5 years forfeits the last 3 months of interest
What are I Bonds and how do they work?
I Bonds are U.S. savings bonds that combine two interest components:
Fixed rate – set when you buy and locked in for 30 years
Inflation rate – adjusted every 6 months using CPI-U inflation data
Interest accrues monthly and compounds twice a year, but your 6-month rate reset schedule is based on your issue month, not universally in May/November. You can hold I Bonds for up to 30 years. They are backed by the U.S. government and cannot be sold on secondary markets.
What is the current I Bonds rate?
For bonds issued November 1, 2025 – April 30, 2026, the composite rate is 4.03%, made up of:
- A fixed rate of 0.90%
- A semiannual inflation rate of 1.67% (equivalent to an annualized rate of approximately 3.36%)
This rate applies to the first six months after purchase. After that, the inflation-adjusted rate will reset based on CPI data, while the fixed rate remains the same for the life of the bond.
How long can I hold an I Bond?
You can hold I Bonds for up to 30 years from the date of purchase.
- Minimum hold: 12 months (cannot redeem before then)
- Redeem before 5 years: Lose the last 3 months of interest
- Redeem after 5 years: No penalty
Example: If you buy at 4.03% and redeem after exactly 12 months, you’ll effectively earn about 3.02% due to the 3-month penalty.
What happens if I cash out early?
If you withdraw an I Bond within the first five years after it was issued, then you will forfeit the most recent three months of interest. Let’s say you invest $10,000 in I Bonds at a 4.03% rate and cash them out after one year. Because you’d forfeit three months of interest, your effective annual return would drop to around 3.02%. Still, that’s a solid return for a government-backed investment with no risk to principal.
There are no withdrawal penalties after five years. However, if you withdraw before it has reached its final maturity date (30 years), you may miss out on additional interest payments.
How is I Bonds interest rate calculated?
The I Bond’s interest rate is a combination of two rates, known as the composite interest rate. It is calculated based on a fixed interest rate and an inflation-adjusted rate. The interest structure is what makes them quite unique.
The composite interest rate is a complex formula: Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
- The fixed interest rate is set at the time of purchase and remains in effect for 30 years. This is currently set at 0.90%.
2. The inflation adjusted-interest rate is calculated twice a year which is usually May 1 and November 1. This is currently 1.56%.
When you go to the Series I Bonds, it will say you’ll get 4.03% interest rate from November 1, 2025 until April 30, 2026.
I Bonds rate history
| DATE | FIXED RATE | INFLATION RATE | I BONDS COMPOSITE RATE |
| November 2025 - April 2026 | 0.90% | 1.56% | 4.03% |
| May 2025 - October 2025 | 1.10% | 1.43% | 3.98% |
| November 2024 - April 2025 | 1.20% | 1.90% | 3.11% |
| May 2024 - October 2024 | 1.30% | 1.48% | 4.28% |
| November 2023 - April 2024 | 1.30% | 1.97% | 5.27% |
| May 2023 - October 2023 | 0.90% | 1.69% | 4.30% |
| November 2022 - April 2023 | 0.40% | 3.24% | 6.89% |
| May 2022 - October 2022 | 0.00% | 4.81% | 9.62% |
| November 2021 - April 2022 | 0.00% | 3.56% | 7.12% |
| May 2021 - October 2021 | 0.00% | 1.77% | 3.54% |
| November 2020 - April 2021 | 0.00% | 0.84% | 1.68% |
| May 2020 - October 2020 | 0.00% | 0.53% | 1.06% |
| November 2019 - April 2020 | 0.20% | 1.01% | 2.22% |
How to invest in I Bonds?
Step 1 – Purchase: You can purchase I Bonds directly from the US Treasury website, or through your bank or financial institution. The minimum investment is $25.
Step 2 – Interest calculation: The interest on I bonds is calculated by combining the fixed and variable rates. This will compound semiannually.
Step 3 – Redemption: I Bonds can be redeemed after 12 months of ownership. However, if they are redeemed before five years have passed, you will forfeit three months of interest.
Step 4 – Taxation: I Bonds are exempt from state and local income taxes, but they are subject to federal income taxes. They may also be exempt from federal income taxes if they are used for a qualified education purpose.
How do I purchase electronic I Bonds from Treasury Direct?
Open the correct account at TreasuryDirect.gov
Individual: for personal purchases
Entity: for trusts or businesses
Provide your details – SSN, bank account, email, and security info
Place your order – Minimum $25, maximum $10,000 per calendar year per account
Know your start date – Bonds earn interest from the first day of the purchase month
Optional: Gift Box – Buy for others and hold until you deliver in a future year
Do I Bonds earn interest monthly?
Interest accrues monthly and compounds every 6 months, but your schedule depends on your purchase month. For example:
- Buy in July → rate resets in January and July each year
- Buy in October → rate resets in April and October each year
I Bonds Taxation
Are I bonds taxed?
I bonds are subject to federal income taxes, but they are exempt from state and local income taxes. This makes them even more attractive to those who live in high-tax states and cities. They can sometimes be fully tax-exempt if they are used to pay for qualified higher education.
You can choose to pay taxes on the interest earned when they are cashed. If you cash out any I Bonds in a specific year, then Treasury Direct will generate a 1099 tax form for the accumulated interest.
The owner is responsible for paying the taxes. This means that if you were gifted an I Bond, you must pay the tax owed.
I Bonds tax benefits
Yes, there are tax benefits associated with I Savings Bonds. One of the main tax benefits of I Bonds is that the interest earned on these bonds is exempt from state and local income taxes.
In addition, if the bonds are used to pay for qualified educational expenses, the education tax exclusion can help you exclude all or part of your I Bond interest from your gross income. However, you must meet several conditions. These include:
- You must be 24 years or older.
- Your tax filing status must not be married filing separately.
- You paid for the qualified higher education expenses that same tax year.
- You claim the exclusion in the same year that you cash the I-bonds.
- Your modified adjusted gross income (MAGI) is less than $100,800 if single or $158,650 if married filing jointly.
When do you pay taxes on I Bonds?
The taxes on I Bonds are typically paid when they are redeemed or reach maturity. The interest earned is subject to federal income tax, but the tax can be deferred until the bonds are redeemed or reach final maturity.
However, federal income tax may not apply to the interest you earn on I Bonds if you use the proceeds to pay for qualified higher education expenses. If you have any questions about the tax implications of I Bonds, then consult your financial advisor or tax professional.
How many I Bonds can you purchase per year?
- Per person: $10,000 per calendar year electronically
- Per entity/trust: $10,000 each per year
- Gifts: Unlimited to purchase, but delivery counts toward the recipient’s annual limit in the year delivered
- No more paper purchases via tax refund (ended Jan 1, 2025)
For example, if you are a married couple filing jointly and you each have a business and one has a trust, then you can purchase $50,000 in I Bonds as outlined below.
- $10,000 in Person A’s personal account
- $10,000 in Person B’s personal account
- $10,000 in Person A’s business account
- $10,000 in Person B’s business account
- $10,000 in Person A’s trust account
Is there a loophole to buy I Bonds above the $10,000 limit?
You can only buy up to $10,000 per person per year. However, if you want to buy more, there is a loophole. You can do a combination of these 3 things:
- Buy $10,000 for your spouse or partner.
- If you have a child, buy $10,000 for your child. You’ll need to open a TreasuryDirect account for your child and link it to your TreasuryDirect account.
- You can also buy an unlimited number of I Bonds as gifts. You can purchase $10,000 or $20,000 of I Bonds for your spouse as a gift, and your spouse can do the same for you. Keep in mind though that once the I Bonds are given as a gift, it will count towards the annual limit of the recipient. This means that if your spouse already bought $10,000 this year, he or she can’t receive your gifted I Bonds this year. It’ll have to wait until the year when your partner is not buying I Bonds. The main risk of this loophole is that if you buy too much, the I Bonds rate might fall by the time it’s given as a gift, and you’ll be stuck at a lower rate.
The main risk of this loophole is that if you buy too much, the I Bonds rate will have fallen in 2026 or beyond, and you’ll be stuck at a lower rate.
Are I bonds a good investment?
I’ll give you 4 reasons why I bonds might be a good investment and 4 reasons why you should think twice.
The benefits of investing in I bonds:
- I Bonds are a great inflation hedge. Whenever inflation is up, the rate is up.
- 4.03% potential return for an investment guaranteed by the federal government is pretty good.
- I Bonds are exempt from state and local taxes, but you do have to pay federal taxes. They may also be entirely tax-exempt if they are used to pay for qualified higher education. It can be an attractive college savings strategy as an alternative or in addition to a 529 plan.
- The redemption value of your I Bonds cannot decline.
The downsides of buying I bonds:
- There is a lack of flexibility because you will be locked-in for 1 year. You cannot withdraw for the next 12 months and even if you do withdraw after 12 months (but before 5 years), you will forfeit 3 months worth of interest.
- If inflation drops, then your return will drop.
- The maximum purchase of digital I Bonds is $10,000 per person. You will need to think about if that’s worth your time.
- If you have excess cash, can you make more money investing in stocks?
I Bonds vs. High-Yield Savings Accounts: Which Is Better Right Now?
The most common comparison investors make when evaluating I Bonds is not against TIPS or EE Bonds — it’s against high-yield savings accounts (HYSAs). Here’s how they stack up at current rates.
| I Bonds | High-Yield Savings Account | |
|---|---|---|
| Current rate | 4.26% (resets every 6 months) | 3.00%–4.15% (varies; can change anytime) |
| Liquidity | Locked 12 months; 3-month penalty before 5 years | Fully liquid |
| Federal tax | Deferred until redemption | Owed annually |
| State/local tax | Exempt | Owed annually |
| Principal protection | Yes (U.S. government) | Yes (FDIC up to $250K) |
| Purchase limit | $10,000/year per person | None |
| Best for | Savers who can commit for 1–5 years and want tax deferral | Savers who need flexibility |
If HYSA rates are meaningfully above 4.26% and you need access to your money, the savings account wins. If you can lock up $10,000 for at least a year and want to defer federal tax on interest, I Bonds remain a compelling option. At District Capital Management, we typically evaluate I Bonds alongside T-bills and brokered CDs as part of a complete cash management strategy.
Can I Bonds lose value?
No, I Bonds can’t lose value. The interest rate cannot go below zero and the redemption value can’t decline.
(Don’t forget to download the ‘Where Should My Next Dollar Go?’ guide if you haven’t already).
When is the last day that I can buy I Bonds at the 4.03% rate?
The last day that you can buy I Bonds at the 4.03% rate is April 30, 2026. However, you should purchase by April 25 to make sure that they are issued in time. This will start you with an annualized rate of 4.03% which would apply for six months after your purchase.
Will the I Bond rate go up in May 2026?
The new I Bond rate will be released on May 1, 2026. We will keep you updated when we hear more.
What should I do if I’ve already maxed out I Bonds purchases for the year?
If you have already maxed out your I Bonds purchases for the year, then you may want to look into brokered CDs or T-Bills.
Should I redeem my I Bonds?
Before redeeming your I Bonds, it’s important to consider several factors to make an informed decision. Here are some key considerations:
- Have you waited at least 12 months? You cannot redeem I Bonds within the first 12 months of purchase. If you redeem them within the first five years, you’ll forfeit the last three months of interest.
- What is the maturity date? Series I Bonds have a 30-year maturity period, but you can redeem them after holding them for at least 12 months. However, it’s often more advantageous to wait until the five-year mark to avoid the penalty.
- What is the current interest rate? I Bonds earn interest based on a fixed rate and an inflation rate that changes every six months. Check the current interest rates to assess whether they are competitive with other investment options. If the rates are attractive, it might be worth holding onto your I Bonds.
- What are your financial goals? Consider your financial goals and the purpose for which you purchased the I Bonds. If you bought the bonds for a specific purpose, such as a down payment on a house, consider whether redeeming them will accomplish that purpose.
- What are the tax implications? Interest earned on Series I Bonds is subject to federal income tax but is exempt from state and local taxes.
- Is inflation a concern? I Bonds offer inflation protection, which can be valuable during periods of rising prices. If inflation is a concern, holding onto I Bonds might provide a hedge against it.
- What are the market conditions? Consider the overall economic and interest rate environment. If interest rates are expected to rise, you might want to hold onto your I Bonds, as they could become more competitive compared to other fixed-income investments.
If you’re unsure about whether to redeem your I Bonds, consider consulting with a fee-only financial advisor. They can provide personalized advice based on your individual financial situation and goals.
How I Bonds Fit Into Your Broader Financial Plan
I Bonds work best when they have a defined job in your financial plan. Here are the situations where we most commonly recommend them at District Capital Management — a NAPFA-member, fee-only fiduciary firm in Washington, DC.
Tier 2 emergency fund. Once your liquid emergency fund (3–6 months in a HYSA) is funded, I Bonds can hold an additional 3–6 months of reserves. You get a better rate than most savings accounts, inflation protection, and the tax deferral benefit — in exchange for accepting the 12-month lockup.
Short-term savings with a known timeline. If you have a financial goal 2–5 years out — a home down payment, a sabbatical fund, a large purchase — I Bonds offer a guaranteed, inflation-adjusted return with no credit risk.
Education savings complement. I Bond interest is potentially tax-exempt when used for qualified higher education expenses, making them a useful addition alongside a 529 plan.
What I Bonds are not: a replacement for a diversified investment portfolio. The $10,000 annual limit and illiquidity mean they play a supporting role, not a lead one.
If you’d like help figuring out where I Bonds fit in your overall strategy, schedule a free discovery call with District Capital Management.
How do I redeem my I Bonds on TreasuryDirect?
- Access TreasuryDirect: If you purchased your I Bonds electronically through TreasuryDirect (the U.S. Department of the Treasury’s online system), log in to your account.
- Select the bonds to redeem: Once logged in, click the ManageDirect tab at the top of the page. Under the heading Manage My Securities, click “Redeem securities”. On the Redemption page, choose the button beside your Series I Savings Bond and click “Submit”. On the Summary page, check the box beside each bond that you want to redeem and click “Select”.
- Provide redemption details: On the Redemption Request page, leave the default button selected for Redeem full amount. Note: If you only want to make a partial redemption, select the button for Redeem partial amount and enter the amount you want to redeem. You must redeem at least $25 and leave at least $25 in the bond. From the drop-down box, select the destination bank account for your redemption proceeds. Click “Review”.
- Verify Information: Double-check all the details before confirming the redemption. Ensure that the information provided, such as bank account details, is accurate.
- Confirm Redemption: The Redemption Review page is then displayed. If any information needs to be changed, click “Edit” and make the changes. Otherwise, click “Submit”. The funds will be electronically deposited into the bank account you specified.
I Bonds vs EE Bonds
When comparing I Bonds to EE Bonds, it’s essential to understand that while both are U.S. government savings bonds, they serve different investment purposes.
- I Bonds are designed to protect against inflation—they offer a variable interest rate that adjusts every six months based on the CPI, making them ideal for preserving purchasing power over time.
- EE Bonds offer a fixed interest rate and come with a unique guarantee: if held for 20 years, they will double in value, regardless of market conditions. This makes EE Bonds appealing for long-term savers who value predictability. However, they may underperform in high-inflation environments where I Bonds typically shine.
Choosing between the two depends on your time horizon and whether you’re more concerned about inflation protection or guaranteed long-term growth.
I Bonds vs TIPS
When comparing I Bonds and TIPS (Treasury Inflation-Protected Securities), both are designed to help investors keep pace with inflation—but they work differently.
- I Bonds are savings bonds that earn interest through a combination of a fixed rate and an inflation-adjusted rate, and they’re not subject to market fluctuations or state and local taxes.
- TIPS are marketable securities whose principal adjusts with inflation, and they can be bought and sold before maturity, meaning their value can fluctuate with interest rates. While I Bonds offer simplicity, tax deferral, and zero risk of loss if held, TIPS provide more flexibility and liquidity for those with brokerage accounts.
Your choice depends on whether you value guaranteed growth with minimal complexity (I Bonds) or prefer tradable securities that offer inflation protection with greater market exposure (TIPS).
FAQ
1. Can I still buy paper I Bonds with my tax refund?
At 4.26%, I Bonds offer a competitive, government-guaranteed return for conservative savers who can commit funds for at least 12 months. They are best suited as a Tier 2 emergency fund or short-term savings vehicle rather than a core portfolio holding. At District Capital Management, we typically recommend I Bonds as a complement to a broader financial plan, not a standalone strategy.
2. What is the difference between I Bonds and a high-yield savings account?
I Bonds currently pay 4.26% with federal tax deferred until redemption and no state or local tax — but you cannot access your money for the first 12 months, and cashing out before 5 years costs 3 months of interest. High-yield savings accounts offer comparable or higher rates today with full liquidity, but interest is taxed annually and rates can change at any time. I Bonds win on tax efficiency; HYSAs win on flexibility.
3. Can I still buy paper I Bonds with my tax refund?
No. That option ended January 1, 2025.
4. What’s the current I Bond interest rate?
The current I Bond composite rate is 4.26% for bonds issued May 1, 2026 through October 31, 2026. This rate combines a fixed rate of 0.90% (locked in for the life of the bond) and a semiannual inflation adjustment of 1.67%. The next rate update will be announced November 1, 2026.
5. How much can I buy in 2026?
$10,000 per person per year electronically through TreasuryDirect.gov. Trusts and businesses each have a separate $10,000 annual limit. Paper bonds via tax refund are no longer available as of January 1, 2025.
6. When do I pay tax on I Bonds?
Federal tax is due at redemption or maturity unless you qualify for the education tax exclusion. State/local tax never applies.
Should I invest in I Bonds in 2026?
If you want a safe, inflation-protected asset for part of your portfolio—and can commit funds for at least a year—I Bonds are worth considering. They’re especially appealing for “Tier 2” emergency funds or education savings when you want safety, inflation protection, and tax advantages.
Before diving into I Bonds, consider exploring alternative short-term investment options.
I Bonds are one piece of a complete cash management and savings strategy. If you’d like help understanding where they fit alongside your emergency fund, investment accounts, and tax plan, schedule a free discovery call with District Capital Management.
Alvin Carlos, CFP®, CFA is a fee-only financial planner, in Washington, D.C. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is the founder of District Capital, a financial planning firm designed to help professionals in their 30s and 40s maximize their money and retire by 55, through holistic financial planning and research-driven investing. Schedule a free discovery call today.
