Series I Savings Bonds Explainer
Series I savings bonds are nonmarketable U.S. government securities designed to preserve purchasing power. Their composite interest rate combines a fixed rate that stays with the bond and an inflation rate that resets periodically based on changes in the Consumer Price Index.
Interest accrues monthly and compounds semiannually, but the owner generally does not receive cash interest until redemption. I bonds cannot be redeemed during the first year. Redeeming before five years normally forfeits the most recent three months of interest, while eligible bonds can continue earning for as long as 30 years.
Electronic purchases are registered to specific owners and subject to annual limits and TreasuryDirect rules. Because I bonds are nonmarketable, their value does not fluctuate on a public secondary market. That avoids visible price volatility but also means the owner cannot sell the bond to another investor for immediate liquidity.
Interest is subject to federal income tax but generally exempt from state and local income taxes, with timing choices and possible education-related exclusions subject to tax rules. I bonds differ from TIPS: TIPS are marketable securities with tradable prices and coupon payments, while I bonds are savings products with redemption restrictions.
A permanent fixed rate combines with a periodically reset inflation rate.
The composite rate can change as inflation changes.
Redemption is barred for one year and may carry an early penalty before five years.
There is no secondary market.
Both address inflation, but their cash flow, taxes, limits, and tradability differ.
Choose comparisons based on the actual rules.
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