How I bond interest works
An I bond’s rate has two parts. The fixed rate is announced every May 1 and November 1 and applies for the life of every I bond issued in the next six months. The inflation rate is also set each May 1 and November 1, from changes in the non-seasonally adjusted CPI-U, and it applies to all I bonds ever issued for six months at a time.
Your bond does not switch rates on May 1 or November 1. It switches every six months from its own issue month: a bond bought in September moves to a new rate each March 1 and September 1.
Interest is earned monthly and added to the bond’s value every six months, so it compounds semiannually for up to 30 years. A bond earns interest from the first day of the month you buy it. Nothing is paid out along the way; you receive the whole value when you cash the bond or it matures.
If Deflation makes the inflation rate negative, it can pull the combined rate below the fixed rate, but Treasury never lets the combined rate fall below zero. Negative inflation rates do happen: the one set on May 1, 2015 was −0.80%. Because of the zero floor, an I bond’s value never goes down.
I bond rates in 2026
I bonds issued from May 1 through October 31, 2026 earn a combined rate of 4.26%. That is a 0.90% fixed rate plus a semiannual inflation rate of 1.67%, set from CPI-U changes and combined with the formula below. Bonds bought from November 2025 through April 2026 carry the same 0.90% fixed rate; they earned 4.03% for their first six months and 4.26% for the six months that began between May and October 2026.
The fixed rate, in effect the bond’s real return above CPI-U, is what separates one purchase year from another over the long run. Bonds bought from May 2020 through October 2022 have a 0.00% fixed rate and earn exactly the inflation component, 3.34% in the current period. Bonds bought from November 2023 through October 2024, with a 1.30% fixed rate, earn 4.66%.
Treasury will announce the next fixed and inflation rates on November 1, 2026, for bonds issued from November 2026 through April 2027. The new inflation rate will reflect how CPI-U moved over the prior six months. An existing bond picks it up at the start of its next six-month period and keeps its original fixed rate.
How to buy I bonds: limits, lockup and penalty
Since January 1, 2025, I bonds are sold only electronically in a TreasuryDirect account, for any amount from $25 up, to the penny. Each Social Security number or employer identification number may buy up to $10,000 of electronic I bonds per calendar year, separate from the $10,000 limit on EE bonds. There is no cap on how much you can own in total.
A few rules shape the limit in practice. Gift bonds count toward the recipient’s limit in the year they are delivered, not the giver’s. A child in a linked account has a separate $10,000 limit, and an entity account such as a trust or business uses its own EIN.
You cannot cash an I bond during its first 12 months. If you cash it before it is five years old, you give up the last three months of interest, so cashing at 18 months pays 15 months of interest. TreasuryDirect shows the value of bonds under five years old with those three months already deducted. After five years there is no penalty, and interest stops at 30 years.
How I bond interest is taxed
I bond interest is subject to federal income tax but exempt from state and local income tax. You choose when to report it: defer until you cash the bond or it reaches 30 years, or report the increase each year. Many people defer, which makes an I bond a small tax-deferred account outside the retirement system. Whichever method you use applies to all your EE and I bonds, and switching from yearly reporting back to deferral requires a request to the IRS.
The interest can be federally tax-free if you cash the bonds in the same year you pay qualified higher-education expenses, including contributions to a 529 plan, for yourself, a spouse or a dependent. The bond owner must have been at least 24 before the issue date, so bonds registered to a child do not qualify, and married owners cannot use the married-filing-separately status. For 2026 the exclusion phases out between MAGI of $101,800 and $116,800, or $152,650 and $182,650 on a joint return. You claim it on Form 8815.
Federal estate and gift taxes, and state estate or inheritance taxes, still apply.
I bonds vs. TIPS, CDs and high-yield savings
I bonds suit money you will not need for at least a year and want protected from Inflation without any risk of a falling price, such as savings for a goal a few years away.
Their limits are the purchase cap and the lockup. For larger sums or retirement income, TIPS offer inflation protection with no practical purchase limit and, on September 18, 2026, a 10-year real yield of 2.68%, far above the 0.90% fixed rate on new I bonds. The trade is that TIPS prices move and their inflation gains are taxed every year. A certificate of deposit pays a known nominal rate for a set term but no inflation adjustment, and a high-yield savings account keeps money available at a rate that can change any day.
Illustrative numbers
A $10,000 I bond bought in May 2026 and cashed at 18 months
- Fixed rate
- Set at purchase for the life of the bond; 0.90% for May–October 2026 issues
- Semiannual inflation rate
- The six-month CPI-U change Treasury announces each May 1 and November 1; 1.67% from May 2026
Treasury rounds the result to the nearest hundredth of a percent, and the combined rate is never allowed below zero.
Combined rate: 0.0090 + (2 × 0.0167) + (0.0090 × 0.0167)0.04255, rounded to 4.26%
Value after 6 months: $10,000 × (1 + 0.0426 ÷ 2)$10,213.00
Value after 12 months, if 4.26% continued$10,430.54
Value after 18 months, same assumption$10,652.71
Paid if cashed at 18 months (last 3 months forfeited)About $10,541.04
Federal tax at 22% on $541.04 of interest$119.03, with no state tax
The early-cash rule costs about $111.67 of interest here. Holding to five years removes that penalty. The rate after the first six months is an assumption: the actual rate depends on the November 1, 2026 announcement, and TreasuryDirect’s own rounding can shift the values by a few dollars.
At a glance
I bonds compared with TIPS and EE bonds, for purchases in May–October 2026
| Feature | I bonds | TIPS | EE bonds |
|---|---|---|---|
| Rate | 4.26% combined, including a 0.90% fixed rate | Fixed coupon set at auction, paid on inflation-adjusted principal | 2.40% fixed; value guaranteed to double at 20 years |
| Inflation protection | Rate resets every 6 months from CPI-U | Principal indexed to CPI-U | None |
| Yearly purchase limit | $10,000 electronic per SSN or EIN | $10 million per auction, noncompetitive | $10,000 electronic per SSN or EIN |
| Minimum | $25, to the penny | $100, in $100 steps | $25, to the penny |
| Getting money early | After 12 months; lose 3 months of interest before year 5 | Sell at the market price, which can be below cost | Same as I bonds |
| Federal tax timing | Deferred until cashed or 30 years, or yearly | Every year, including inflation added to principal | Deferred until cashed or 30 years, or yearly |
| State and local income tax | Exempt | Exempt | Exempt |
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I Bonds FAQs
Can you lose money on I bonds?
Not in dollars. The combined rate cannot fall below zero, so an I bond’s value never declines, and it is issued by the U.S. Treasury. You can give up interest: cashing before five years forfeits the last three months, and in the first 12 months you cannot cash the bond at all. You can also earn less than other safe options if their rates rise while the I bond’s inflation rate falls.
When should you cash in I bonds?
Waiting until a bond is five years old avoids losing three months of interest. After that, compare what the bond will earn next, its fixed rate plus the current inflation rate, with what the money could earn elsewhere after tax. Bonds with a 0.00% fixed rate only ever match CPI-U, so they are the usual candidates to cash first; a bond bought when the fixed rate was high keeps that edge over inflation for up to 30 years. Cashing makes any deferred interest federally taxable that year.
How much in I bonds can a couple buy each year?
Each spouse can buy $10,000 of electronic I bonds a year under their own Social Security number, so $20,000 for two people. Bonds you buy for a child or as a gift do not use your own limit; they count toward the recipient’s, and a gift counts in the year it is delivered rather than the year you buy it.
Are I bonds a good place for an emergency fund?
Only for part of it. Money in an I bond is locked for the first 12 months, so it cannot cover an emergency next month. After a year, I bonds can serve as a second layer of an emergency fund, behind savings you can reach immediately, with the three-month interest penalty as the cost of cashing before year five.
What happens to I bonds after 30 years?
They stop earning interest. Treasury pays electronic I bonds automatically when they mature, while paper bonds must be submitted to be cashed. If you have been deferring the tax, all the interest becomes federally reportable in the year the bond matures, whether or not you cash it, so a large, old holding can bunch taxable income into a single year.