Most savings products hand you a number and leave it there. Series I savings bonds work differently. Their rate moves with inflation, which means the question this site keeps asking, "what is my money worth?", is baked right into how they pay. That makes them a useful test case: a savings product that tries, by design, to keep a dollar worth a dollar.

Two parts make one rate

The U.S. Treasury describes an I bond's earnings rate as two pieces put together.

The first piece is a fixed rate. Treasury announces it at the time you buy, and it stays attached to that bond for as long as you own it. It can be zero.

The second piece is an inflation rate, and that one changes every six months. Treasury bases it on changes in the Consumer Price Index for all Urban Consumers (CPI-U), the same price index the Bureau of Labor Statistics puts out each month.

Treasury joins the two using a published formula:

Composite rate = fixed rate + (2 × semiannual inflation rate) + (fixed rate × semiannual inflation rate)

Why the doubling? The inflation figure covers six months, but the composite rate is quoted as a yearly rate. The last term in the formula is small, and it only comes into play when the fixed rate is above zero.

When the rate changes

Treasury announces new I bond rates every May 1 and November 1. Your own bond, though, follows its own calendar and resets every six months counting from its issue date. Buy a bond in March, and it picks up a new inflation component each March and September after that. The catch is timing. The rate you earn today reflects inflation that has already happened, not the inflation going on right now.

What the rules ask of you

The inflation link comes with strings. Read them before you buy.

  • You can't cash an I bond during the first 12 months. Your money is locked up for a year.
  • If you cash it before five years, you lose the last three months of interest. Once you pass five years, there's no penalty.
  • There's a yearly purchase limit. TreasuryDirect states a limit of $10,000 in electronic I bonds per person per calendar year, bought through a TreasuryDirect account. As of January 1, 2025, I bonds are sold only electronically, so paper bonds are no longer an extra route.
  • Interest compounds semiannually and gets added to the bond's value. It isn't paid out to you along the way.
  • The bond keeps earning interest for 30 years unless you cash it before then.

How taxes work

According to TreasuryDirect, I bond interest is subject to federal income tax but exempt from state and local income tax. You have a choice on timing: report the interest every year, or wait and report it when you cash the bond or when it stops earning interest. In some cases, interest you use for qualified higher education expenses can be left out of federal income tax. The IRS sets the conditions and the income limits for that.

Does an I bond protect purchasing power?

Mostly. There are three catches.

It follows an average, not your own basket. CPI-U measures price changes for a broad market basket of goods and services bought by urban consumers. If most of your spending sits in a category climbing faster than the average, say rent in one particular city, a rate tied to the index won't fully match what you're living through.

It runs behind. The inflation component resets every six months using past CPI-U changes, so a sudden jump in prices reaches your rate later on.

Taxes take their cut. If the composite rate only keeps pace with inflation, the federal tax on your interest means your after-tax return can slip a little behind it. The fixed rate is the piece that can actually put you ahead of inflation, and that gets locked in when you buy.

Can the rate go below zero?

Treasury states that an I bond's composite rate can't go below zero. If CPI-U drops far enough to drag the formula negative, the composite rate is simply set at zero for that period. The value of your bond doesn't go down.

What the history shows

TreasuryDirect publishes every fixed rate going back to the start of the program, and that record shows the timing problem better than any made-up example could.

The first I bonds went on sale in September 1998. Treasury's announcement set a fixed rate of 3.40 percent and a first earnings rate of 4.66 percent, combining that fixed rate with 1.24 percent annualized inflation. The release spells out where the inflation piece came from: CPI-U rose from 161.2 to 162.2 between September 1997 and March 1998, a six month increase of 0.62 percent. Double that and you get the 1.24 percent.

After that, fixed rates drifted down. TreasuryDirect's table shows the fixed rate at 0.00 percent for every six month window from May 2020 through April 2022. If you bought during those two years, you got inflation protection and nothing on top of it.

Then inflation took off. For bonds issued from May through October 2022, Treasury announced a composite rate of 9.62 percent, built from a 0.00 percent fixed rate and 4.81 percent semiannual inflation. Headlines called it a high yield. It was really the formula passing along price increases that had already happened.

The latest announcement shows the same formula at work. For bonds issued from November 1, 2026 through April 30, 2027, TreasuryDirect lists a 1.40 percent fixed rate and a 2.04 percent semiannual inflation rate. Plugged into the formula, 0.0140 + 0.0408 + (0.0140 × 0.0204) gives 0.0550856, which rounds to a composite rate of 5.51 percent. Rates change every May and November, so check the page before you buy.

Fixed rate versus inflation rate: which matters more?

If you only hold the bond a short while, the inflation component does most of the work. Over decades, though, the fixed rate is what separates an I bond from a jar of cash that just keeps pace. A bond bought in late 1998 still carries its 3.40 percent fixed rate on top of inflation. A bond bought in 2021 carries 0.00 percent for its whole life. So two people holding I bonds today can be earning very different rates for that reason alone.

A quick way to think about it

Picture two jars sitting on a shelf. The first holds cash that earns nothing, so every year of inflation quietly shrinks what it can buy. The second holds an I bond that adds interest rising and falling with the CPI-U. Neither jar is going to make you rich. The second one is built to keep your money's buying power about where it started, plus whatever fixed rate you locked in.

Few accounts answer "what will this money buy later?" as directly.

How to check current numbers

Rates change twice a year, so you won't find today's rate listed in this article. Before you buy, look up the current fixed and inflation rates on TreasuryDirect's I bond page, and use our calculator to see how prices have moved over whatever stretch of time matters to you.

Sources

  • TreasuryDirect, "I bonds" and "I bonds interest rates": https://www.treasurydirect.gov/savings-bonds/i-bonds/ and https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
  • TreasuryDirect, "Tax information for EE and I bonds": https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/
  • U.S. Bureau of Labor Statistics, Consumer Price Index: https://www.bls.gov/cpi/
  • IRS, Publication 970, Tax Benefits for Education (education savings bond program): https://www.irs.gov/publications/p970
  • TreasuryDirect, "New I-Bonds Go On Sale Today" (September 1, 1998): https://www.treasurydirect.gov/news/1998/release-09-01/
  • TreasuryDirect, "Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 9.62%" (May 2, 2022): https://treasurydirect.gov/news/2022/release-05-02-rates/