A Series I bond is a nonmarketable U.S. savings bond whose composite rate combines a fixed component with an inflation component.
A Series I bond is a nonmarketable U.S. savings bond whose composite interest rate combines a lifetime fixed rate with a changing inflation rate. New I bonds are electronic and are bought and held through TreasuryDirect; the former paper I-bond tax-refund purchase option ended on January 1, 2025.
The fixed rate applies for the life of the bond. The semiannual inflation rate is based on changes in non-seasonally adjusted CPI-U. The formula produces an annualized composite rate, which Treasury applies to the bond for a six-month earning period. A composite rate can rise or fall, but Treasury does not allow it to fall below zero.
Assume a hypothetical I bond has a 0.80% fixed rate and the applicable semiannual inflation rate is 1.20%. Convert the percentages to decimals and apply Treasury’s formula:
Rounded to two decimal places as a percentage, the composite rate is 3.21%:
0.032096 x 100 = 3.2096%
The 3.21% is an annualized rate for that six-month earning period. It is not 3.21% paid over six months, and it does not remain for the bond’s full life. After six months, the bond moves to the next applicable inflation component while retaining its original 0.80% fixed rate.
This example uses hypothetical inputs rather than current rates. A bond’s actual rate schedule depends on its issue date, and TreasuryDirect should be used to verify the rate and redemption value.
| Feature | Series I Bond Treatment |
|---|---|
| Marketability | Nonmarketable savings bond; it is not bought and sold on an exchange. |
| Rate structure | Fixed rate plus inflation component. |
| Interest | Accrues monthly and compounds semiannually. |
| Redemption | Generally unavailable during the first year; redemption before five years forfeits the latest three months of interest. |
| Tax | Federal tax applies; state and local income tax treatment differs from many other investments. |
| Best source | TreasuryDirect for current rates, limits, redemption rules, and tax forms. |
Treasury sets new I-bond rate components in May and November. A particular bond does not necessarily switch on those exact calendar dates. Instead, it earns each composite rate for six months based on its issue month. For example, an I bond with a February issue month begins a new six-month rate period each February and August.
This timing matters when comparing a newly announced rate with an existing bond. The new fixed rate applies only to newly issued bonds during the stated issue window; it does not replace the fixed rate on an existing I bond. The new inflation component reaches existing bonds according to their individual six-month schedules.
| Feature | Series I Bond | Treasury Inflation-Protected Securities |
|---|---|---|
| Investor access | Retail savings bond program. | Marketable Treasury security. |
| Inflation link | Composite rate includes inflation component. | Principal adjusts with CPI-U. |
| Cash flow | Interest is paid at redemption or maturity. | Interest is paid every six months. |
| Liquidity | Redeemed through Treasury rules. | Can be sold before maturity at market price. |
| Main risk focus | Redemption timing, current rate period, tax timing, and purchase limits. | Real yield, market price, tax timing, and maturity. |
I bonds cannot generally be redeemed during their first 12 months. Redemption before five years forfeits the latest three months of interest. They have no secondary-market price, so the owner does not face a quoted capital loss from rising market yields, but the owner also cannot sell immediately or capture a market premium.
The zero-percent composite-rate floor prevents the nominal redemption value from declining because of a negative rate. It does not guarantee that purchasing power rises after federal income tax, and it does not protect against every measure of household inflation.
Interest is subject to federal income tax and exempt from state and local income taxes under current Treasury guidance. Many cash-method individuals generally can defer federal reporting until redemption or final maturity, while annual reporting elections and ownership changes can alter timing. A qualified education exclusion has additional ownership, age, income, expense, and filing-status requirements.