You buy I Bonds directly from the U.S. Treasury through TreasuryDirect, not through a bank or brokerage

I Bonds are savings bonds issued by the federal government. You lend money to the Treasury, and in return you receive interest payments. The interest rate changes every six months based on inflation, which is why they are called "I" Bonds — the "I" stands for inflation-adjusted.

To buy them, you create an account on TreasuryDirect.gov, link a bank account, and purchase bonds in amounts from $25 to $10,000 per calendar year. The Treasury holds the bonds electronically — you do not receive a physical certificate. You can buy them for yourself, for a child, or as a gift.

I Bonds are not traded on the secondary market. You cannot sell them to another person. You can only redeem them back to the Treasury, and there are penalties if you do so within the first five years of ownership.

Key Takeaways

  • I Bonds are purchased directly from TreasuryDirect.gov in amounts between $25 and $10,000 per calendar year, with no fees or commissions.
  • The interest rate is set every six months and includes a fixed rate plus an inflation adjustment, so your return changes based on the Consumer Price Index.
  • You must hold an I Bond for at least one year before you can redeem it, and if you redeem it before five years, you lose the last three months of interest.
  • I Bonds are backed by the U.S. government and carry no market risk, but they offer lower returns than stocks or corporate bonds in low-inflation periods.
  • You can buy up to $10,000 per person per calendar year through TreasuryDirect, plus an additional $5,000 if you use your tax refund.

How the interest rate works and when it changes

Every I Bond has two interest components: a fixed rate and an inflation rate. The fixed rate is set when you buy the bond and never changes. The inflation rate is recalculated every six months — in May and November — based on the Consumer Price Index published by the Bureau of Labor Statistics.

When you buy an I Bond, you receive the composite rate (fixed plus inflation) that was announced on the most recent rate-setting date. If you buy in June, you get the rate that was set in May. That rate stays the same for six months. In November, the inflation component resets, and your rate changes — but only the inflation part. The fixed rate you locked in at purchase remains yours for the entire 30-year life of the bond.

The inflation rate can be zero or negative. If inflation falls, the inflation component of your rate can drop to zero, but it cannot go below zero. Your total rate will never be less than your fixed rate. This is a floor that protects you in deflationary periods.

The penalty for cashing in early

You cannot redeem an I Bond during its first year of ownership. If you try, the Treasury will reject the request. After one year, you can redeem it at any time, but you will lose the last three months of interest as a penalty.

This penalty is significant. If you hold a bond for two years and then redeem it, you receive interest for only 21 months. If you hold it for five years and one day and then redeem it, you still lose three months of interest. The penalty does not change based on how long you have held the bond.

Because of this structure, I Bonds are best suited to money you do not plan to touch for at least five years. If you think you might need the money sooner, the penalty makes I Bonds a poor choice compared to a high-yield savings account, which has no withdrawal restrictions.

How to set up a TreasuryDirect account

Go to TreasuryDirect.gov and click "Open an Account." You will need a Social Security number, a valid email address, and a U.S. bank account (checking or savings). The Treasury will verify your identity using information from the IRS and Social Security Administration.

Once your account is open, you link your bank account for purchases and redemptions. The Treasury uses ACH transfers, which typically take one to two business days. You can buy bonds immediately after your account is verified, which usually happens within one business day.

If you want to buy an I Bond as a gift for someone else, you can set up a "gift box" in your account. The recipient receives a notification and can claim the bond into their own TreasuryDirect account. They do not have to accept it, and if they do not claim it within a set period, it returns to your account.

Annual purchase limits and how to work around them

You can buy up to $10,000 in I Bonds per calendar year through TreasuryDirect using your bank account. This limit resets on January 1. If you are married, each spouse has a separate $10,000 limit, so a household can purchase $20,000 per year.

There is an additional way to buy I Bonds: using your federal tax refund. If you file taxes and receive a refund, you can use IRS Form 8888 to direct part or all of that refund into I Bonds. This purchase does not count against your $10,000 annual limit. You can buy up to $5,000 in I Bonds this way each year. The bonds are issued in your name on the first day of the month in which the IRS processes your refund.

If you want to buy more than $15,000 per year (the $10,000 TreasuryDirect limit plus the $5,000 refund limit), you cannot. The Treasury does not allow it. Some people buy I Bonds for their children or set up accounts for future years, but you cannot exceed $10,000 per person per calendar year through normal channels.

What happens when an I Bond matures

I Bonds have a 30-year maturity period. For the first 20 years, they earn interest. After 20 years, they stop earning interest but remain redeemable. After 30 years, they stop earning interest entirely and you should redeem them.

You do not have to do anything when a bond reaches 20 years. It stays in your TreasuryDirect account and continues to hold its value. You can redeem it whenever you want after the first year. Many people hold bonds past 20 years because they forget about them or because they are using them as a long-term savings vehicle.

When you redeem an I Bond, the Treasury deposits the principal plus all accrued interest into your linked bank account. The transaction typically settles within one to two business days. You will receive a 1099-INT form at tax time reporting the interest you earned, which is subject to federal income tax (but not state or local income tax).

I Bonds versus other savings options

I Bonds are safest when inflation is high or unpredictable. Your rate automatically adjusts every six months, so you are protected if inflation rises. In periods of low inflation, I Bonds often pay less than high-yield savings accounts, which currently offer rates between 4% and 5% with no lock-in period and no penalty for withdrawal.

The trade-off is liquidity and certainty. A high-yield savings account is accessible anytime. An I Bond locks your money away for at least one year and penalizes you if you redeem before five years. If you know you will not need the money for five years or longer, I Bonds can make sense as part of a diversified savings strategy. If you might need it sooner, a savings account is simpler.

I Bonds are also different from stock market investments. They carry no market risk — your principal is may provide by the U.S. government. But they also do not offer the growth potential of stocks or stock funds over long periods. They are a conservative savings tool, not an investment vehicle for wealth building.

Tax treatment and reporting

Interest earned on I Bonds is subject to federal income tax. You can choose to report the interest each year as you earn it, or you can defer reporting until you redeem the bond or it matures. Most people defer, which means they report all the accumulated interest in the year they cash in the bond.

I Bonds are not subject to state or local income tax. This can make them attractive if you live in a state with high income tax rates, though the federal tax liability remains.

If you redeem an I Bond before it has been held for five years, you lose three months of interest. That lost interest is not reported on your tax form — it simply does not accrue. Only the interest you actually receive is taxable.

Frequently Asked Questions

Can I buy I Bonds for my child or grandchild?

Yes. You can buy I Bonds in a child's name if you have their Social Security number. The child's account is managed by you as the parent or guardian until they reach age 18. You can also buy bonds as gifts using the gift box feature, which allows the recipient to claim them into their own account later.

What happens if I need to redeem my I Bond before one year?

The Treasury will not allow it. You must hold the bond for at least 12 months. If you redeem it after one year but before five years, you lose the last three months of interest earned.

Do I Bonds earn interest if I do not do anything?

Yes. Interest accrues automatically every month and is added to the bond's value. You do not have to take any action. The interest rate adjusts every six months based on inflation, and your bond's value grows accordingly.

Can I sell my I Bond to someone else?

No. I Bonds cannot be sold on the secondary market. You can only redeem them back to the Treasury. If you want to transfer a bond to someone else, you must use the gift box feature at the time of purchase, not after.

What if the inflation rate goes negative?

If inflation falls below zero, the inflation component of your I Bond rate becomes zero, but your total rate will not drop below your fixed rate. For example, if your fixed rate is 1.30% and inflation turns negative, your rate stays at 1.30%. You are protected by the floor.