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Are I Bonds Right for Me?

Are I Bonds Right for Me?

August 10, 2022

A popular topic in the media recently has been I bonds, and we have been getting more questions about them from our clients. I bonds are issued by the US Federal Government and are now paying 6.89%. Can this be true? Yes, it is! In this article we will cover details including the pros and cons to see if I bonds may be right for you.

In this blog, you’ll learn:

  • What is an I bond?
  • How many I bonds can I buy for myself or others?
  • What is the cost of I bonds?
  • Who may own I bonds?
  • How long do I have to hold I bonds?
  • How are I bonds taxed?
  • Summarizing the pros and cons of I bonds

Be sure to visit the website which is the central source for information regarding I bonds.

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What is an I Bond?

Series I savings bonds are commonly called “I Bonds”. They are issued by the U.S. Federal Government Treasury Department1 and are purchased online at the TreasuryDirect website.

The interest rate for Series I bonds is compounded semi-annually, where the interest is a combination of a fixed rate plus an inflation rate:

  • I Bond Fixed Rate: The Treasury announces the fixed rate for I bonds every six months (on the first business day in May and the first business day in November). The fixed rate then applies to all I bonds issued during the next six months and is an is an annual rate (the rate you would get if held for 12 months).
  • I Bond Inflation Rate: The inflation rate can change every six months (on the first business day in May and the first business day of November). It is based on changes in the non-seasonal adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.

A formula is used to determine the I bond interest rate by combining the fixed rate and inflation rate. The I bond interest rate change is applied to your bond every six months from the bond’s issue date, so the date for these changes might not be May 1 or November 1.


The interest rate for I bonds purchased from November 2022 through April 2023 is 6.89%.

How many I bonds can I buy for myself or others?

I bonds can be purchased in electronic or paper form and each has different limits:

In a calendar year, you can buy:

  • Up to $10,000 in electronic I bonds at TreasuryDirect® 
  • Up to an additional $5,000 in paper I bonds using your federal income tax refund

Some additional points:

  • The limits above apply separately, meaning you can buy up to $15,000 in I bonds in a calendar year combining electronic and paper bond options
  • Bonds you buy for yourself and bonds you receive as gifts (or via transfers) count towards the limit, with two exceptions: first, if a bond is transferred to you due to the death of the original owner, the amount does not count towards your limit. Second, if you own a paper bond issued before 2008, you can convert it to an electronic bond in your TreasuryDirect® account, regardless of the amount of the bond. (The annual limit before 2008 was greater than today’s limit of $10,000.)
  • The limits are applied per the Social Security Number of the first person named as owner of a bond or, for an entity, per Employer Identification Number.
  • You can buy electronic I bonds as gifts for any TreasuryDirect® account holder, including children. You can request paper I bonds in the names of others and then, once the bonds are mailed to you, give the bonds as gifts.
  • The purchase amount of a gift bond counts towards the annual limit of the recipient, not the giver. So, in a calendar year, you can buy up to $10,000 in electronic bonds and up to $5,000 in paper bonds for each person you buy for, and the then owner of the I bonds.
  • How you register the bond at purchase determines who owns the bond and who can cash it. The registration is the name of the owner (either a person or entity), the Taxpayer Identification Number, and if applicable, the second-named owner or beneficiary.

What do I bonds cost?

You pay the face value of the bond. For example, you pay $50 for a $50 bond. Electronic I bonds come in any amount to the penny from $25 or more. For example, you can buy a bond for $52.78. Paper bonds are sold in five denominations:  $50, $100, $200, $500 and $1,000. We think it would be simplest to buy one electronic $10,000 I bond.

Who may own I bonds?

I bonds may be owned by adults, children under 18, trusts, estates, corporations, and some other entities:

An individual may purchase I bonds if they have a Social Security Number and meet any one of these three criteria:

  • Unites States citizen, whether you live in the U.S., or abroad
  • United States resident
  • Civilian employee of the United States, no matter where you live

To buy and own an electronic I bond, you must first establish a TreasuryDirect® account.

Children under 18 may purchase electronic I bonds if they meet one of the above conditions for individuals and paper bonds; however, children cannot directly: open an account, buy securities, or conduct any other transactions in TreasuryDirect®.

  • Electronic I bonds – A parent or other adult custodian may open an individual account for a child, or one linked to the adult’s TreasuryDirect®. The adult can buy securities and conduct other transactions for the child, and other adults can buy savings bonds for the child as gifts.
  • Paper I bonds – Adults can buy bonds in the name of a child

A Trust, Estate, Corporation, Partnership, and some other entities may purchase electronic I bonds through TreasuryDirect. Trusts and estates can purchase electronic I bonds in some cases. Corporations, partnerships and other entities cannot purchase paper I bonds.

How long do I have to hold I bonds?

I bonds are not intended to be traded and are intended to be long-term investments:

You cannot cash them in for at least 12 months from purchase of each bond and are intended to be held for five years. If you redeem the bonds before the five-year anniversary of the purchase date, you will pay a penalty of the last three months of interest.

How are I bonds taxed?

I bonds are exempt from state and local taxes, meaning you will not pay state or local taxes on the earnings of the bonds, but I bonds are subject to federal taxes.

You have the option to pay taxes on a cash basis or on the accrual basis. Under the cash method, you would not pay taxes until you redeem your bond—because even though you had earned the interest income, you had not actually acquired any of that money. Under the accrual method, you would pay taxes each year on the income you earned that was added back to the value of your I bond.

Summarizing the Pros and Cons of I bonds

Like all investments, there are pros and cons and the following is our view of I bonds’ positives and negatives:


  • During periods of high inflation (such as now), I bonds pay an impressive interest rate. May 2022 through October 2022 the interest rate on I bonds was 9.62% - but if the inflation rate comes down, so will the interest rate paid by I bonds. On November 1, 2022 the interest rate on I bonds changed to 6.89%
  • I bonds have the full backing of the U.S. Federal Government
  • It is easy to go online and purchase I bonds
  • The bonds receive interest for up to 30 years


  • A person can only purchase $10,000 per year (plus up to an additional $5,000 from their federal tax refund)
  • A $20,000 investment for a couple per year may be too small for some investors with a larger net worth; and could be considered “noise”
  • I bonds have to be held for at least 12 months, and have a 3 month interest penalty if sold within the first 5 years
  • It is yet another place for a person to have investments, adding to the complexity of an estate when a person dies
  • If a person is not tech savvy, they may be uncomfortable purchasing and managing the I bonds long term online

While I bonds may not be for everyone, some people may find them a good fit with their financial goals. If you have questions about I bonds and whether they may be a fit for you, give your Wealth Manager a call.


Financial Journey Partners

Financial Journey Partners - Partners in Your Financial Journey®

Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.

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1 TreasuryDirect®Series I Savings Bonds Rates & Terms: Calculating Interest Rates