🎯 In 30 seconds: An I bond’s rate is a fixed part, locked for 30 years, plus an inflation part that resets every six months. Over the long run the fixed part decides how good the bond is. An EE bond pays a fixed rate and is guaranteed to double if you hold it 20 years. Both lock your money up for 12 months and cost 3 months of interest if cashed before 5 years. Buying steps are on How to buy Treasuries and I bonds; this page is about using them well.
The rules that shape every decision
| Where to buy | TreasuryDirect only, electronic |
| Minimum | $25, then any amount to the penny |
| Yearly limit | $10,000 of I bonds and $10,000 of EE bonds per Social Security number per calendar year |
| Earliest cash-out | 12 months after purchase |
| Cashed before 5 years | You lose the last 3 months of interest |
| Interest stops | 30 years after issue |
| Taxes | Federal only, each year or when cashed; no state or local income tax |
| New rates announced | Every May 1 and November 1 |
How an I bond’s rate is built
TreasuryDirect combines two pieces into one composite rate: the fixed rate, plus twice the six-month inflation rate, plus a small extra term (the fixed rate times the six-month inflation rate). The inflation piece comes from changes in the CPI-U, the Consumer Price Index for All Urban Consumers, not seasonally adjusted. If deflation would push the composite below zero, it stops at zero.
Your bond’s rate changes every six months counted from the month you bought it, not on May 1 and November 1. A bond bought in February resets on August 1 and February 1.
Every I bond outstanding gets the same inflation piece. The fixed rate is what differs from bond to bond, and you keep yours for 30 years.
Worked example: why the fixed rate matters most
Two friends each put $10,000 into I bonds. Omar buys when the fixed rate is 0.0%. Rina buys when it is 1.2%. Assume inflation runs a steady 1.25% every six months (2.5% a year) for 20 years.
| Omar, 0.0% fixed | Rina, 1.2% fixed | |
|---|---|---|
| Composite rate | 2.50% | 3.72% |
| Value after 20 years | about $16,440 | about $20,880 |
Same inflation, same deposit, and about $4,440 of difference, all from the fixed rate. That is why owners of low-fixed-rate I bonds often compare them with other safe options once the inflation piece drops, while bonds with a higher fixed rate tend to be kept. The current fixed rate is on Today’s Rates.
Timing purchases and cash-outs
- Buy late in a month. Interest starts on the first day of the month you buy, so a purchase on the 27th earns the whole month.
- Cash out early in a month. Interest is added at the start of each month. Cashing on the 2nd of a month gets that month’s credit; cashing on the 30th of the month before does not.
- Watch the announcement dates. A bond bought before May 1 or November 1 keeps the rate in force at purchase for its first six months. Some buyers compare the current rate with the one expected next, using published inflation data, before choosing which side of the date to buy on.
- Price the penalty. On a $10,000 bond earning 4% composite, losing three months of interest costs roughly $100. After the first year, some owners accept that cost when another safe option pays clearly more for the years ahead.
EE bonds: the 20-year doubling
A new EE bond earns a fixed rate set on the day you buy it. The Treasury also guarantees it will be worth twice the purchase price after 20 years, and makes a one-time top-up then if the rate alone fell short. Doubling in 20 years works out to about 3.53% a year.
The catch: the guarantee pays only on the 20-year date.
| $5,000 EE bond at a made-up 2.5% fixed rate | Value |
|---|---|
| After 10 years | about $6,410 |
| After 19 years | about $8,016 |
| After 20 years | $10,000 (about $8,218 from interest plus a top-up of about $1,782) |
Cashing a year early leaves about $1,984 behind. EE bonds suit money that can sit untouched for the full 20 years, such as a goal far in the future. When the fixed rate is above about 3.53%, the guarantee stops mattering and the bond simply earns its rate. Either way, the bond keeps earning interest until 30 years.
Taxes and the college exclusion
You can report savings bond interest each year or wait until you cash the bond; most people wait. There is never state or local income tax on it.
If you cash I or EE bonds and pay qualified higher education costs the same year, some or all of the interest can be left out of federal income, figured on IRS Form 8815. The conditions include income limits that change each year, bonds issued in your name (or yours and your spouse’s), and being at least 24 before the bonds were issued. A bond in a child’s name does not qualify for this break. Check the current form instructions before you count on it, and see Paying for College for the bigger picture.
Where they fit
| Goal | I bonds | EE bonds | Also compare |
|---|---|---|---|
| Money for 1–5 years that should keep up with prices | Good fit after the 12-month lock | Poor fit; the doubling needs 20 years | TIPS, CDs, T-bills |
| Money that can sit 20 years | Works, especially with a decent fixed rate | Good fit when you want a known result | Long-term investing |
| Money you may need within 12 months | Not possible | Not possible | Savings, T-bills |
| More than $10,000 a year | Capped | Capped | TIPS, which have no such limit |
- Which part of an I bond’s rate stays the same for 30 years? Answer: The fixed rate.
- You cash an I bond after 3 years. What do you give up? Answer: The last 3 months of interest.
- Why can cashing an EE bond at 19 years be costly? Answer: You miss the one-time top-up that doubles the purchase price at 20 years.
- Does your state tax savings bond interest? Answer: No. Only federal income tax applies.