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I bonds explained: How these inflation-protected savings bonds can fit in your portfolio

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As you shape a financial strategy to grow your money and support your family and the causes you care about, it sometimes can seem hard to strike a balance with your investment options. Many assets make you choose between high-risk, high-growth opportunities and low-risk, low-return ones.

I bonds, however, can provide a little of both. That's why these inflation-protected bonds can be a smart complement to your retirement or college-education savings—or just a generally effective component in your financial wellness toolbox.

Let's take a closer look.

What are I bonds?

I bonds, also called Series I savings bonds, are interest-earning securities backed by the U.S. government. While many bonds generally pay a fixed interest rate, I bonds earn a combined fixed and variable rate, also known as a composite rate. The variable rate is based on inflation—as measured by the Consumer Price Index—and is adjusted every six months.

These inflation-protected bonds are designed to safeguard your money's value as prices increase, offering the security of a government-backed bond with the potential for interest gains as prices climb.

You purchase I bonds directly from the U.S. Treasury. Once deposited, your money earns monthly interest that compounds, meaning it's added to the principal balance, every six months.

I bonds are intended to be long-term investments, lasting up to 30 years. You can cash out your bond as early as one year after purchasing, but you'll pay a penalty if you cash it anytime before five years, losing the last three months of accrued interest.

Understanding I bonds vs. EE bonds

The Series I savings bond is similar to an EE bond, another security offered by the U.S. Treasury. You can purchase both bonds for a minimum of $25. EE bonds, like I bonds, also earn monthly interest that compounds semiannually.

Because of their similarities, it can be hard to determine whether to buy I or EE bonds, but there are a few notable distinctions.

The most significant difference between I and EE bonds is the type and amount of interest earned. While I bonds earn the combined fixed and variable interest rate, EE bonds earn a fixed rate that is guaranteed for the first 20 years. The U.S. Treasury also guarantees your EE bond will double in value by year 20.

I bonds are typically offered at higher interest rates that adjust with inflation every six months. Interest rates for EE bonds are usually lower than I bonds, but they are locked in until you cash out or until the bond matures. In a high-interest-rate environment, the EE bond's value will not keep up with inflation, essentially diminishing your money's purchase power.

How are I bonds taxed?

I bonds only can be held in non-qualified accounts, so federal income tax is due on interest earned from an I bond, but there are no state or local income taxes. Because an I bond doesn't pay out the interest while your money is invested, you can decide how you want to pay taxes on the interest income: You can do it each year as it accrues, or you can wait until you either redeem the savings bond or it matures.

However, you may be able to gain certain tax advantages if you use the I bond to pay for qualifying higher education expenses. You'll have to meet several conditions, so it's a good idea to work with a tax advisor to determine if you're eligible.

In addition to federal income taxes, I bonds also are potentially subject to federal estate, gift and excise taxes and any estate and inheritance taxes at the state level.

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Are you new to savings bonds?

Savings bonds can be an effective part of your total investment strategy. Read our guide on everything you need to know about investing in bonds. 

Let's go

How to buy Series I bonds

Whether you want to round out your retirement investing or target a savings goal within the next several years, I bonds can be a low-risk opportunity to grow your money.

1. Determine which type of I bond to purchase

Series I bonds come in two types: electronic and paper. Electronic I bonds can be purchased at, making them fairly easy to access. You'll need to create an account before you buy. This includes providing information like your Social Security number, bank information and email address.

Paper I bonds only can be purchased with your tax refund using IRS Form 8888.

2. Decide who will own the I bond

You can purchase an I bond for yourself or as a gift for someone else. I bonds also can be owned by a trust. Identify who will own the electronic or paper savings bond by listing their Social Security number. If you're purchasing an electronic bond for anyone under age 18, they also will need a TreasuryDirect account.

3. Calculate how much to invest

Electronic I bonds can be purchased in amounts between $25 and $10,000. You can buy paper I bonds in $50 increments for up to $5,000. So, if you own a mixture of electronic and paper bonds, you can buy up to $15,000 annually.

These annual limits are for each Social Security number. For example, you can purchase $10,000 of electronic I bonds for yourself and an additional $10,000 as a gift for a child.

4. Let your money sit

When determining how long to let your I bond grow, keep in mind how I bonds work. They're long-term investments designed to mature at a maximum of 30 years. Although you can cash out your bond anytime after five years with no penalty, cashing out sooner than five years will result in an interest penalty.

Pros & cons of investing in I bonds

Consider this summary of the benefits and pitfalls of I bonds to help you determine if or when to buy.


  • I bonds are backed by the U.S. government.
  • Interest compounds semiannually.
  • I bond earnings are based on a fixed and variable composite rate that adjusts with inflation.
  • The government guarantees that interest rates will never fall below zero.
  • Interest rates are generally higher than non-inflation-protected bonds.
  • You may be able to get tax advantages if you redeem your I bond and use the money for qualified higher education expenses.


  • Like fixed-rate bonds, I bonds can lose value if interest rates rise.
  • You'll face a penalty if you redeem your I bond in fewer than five years.
  • You must pay federal income tax on interest earned, along with federal and state estate, gift and excise taxes.
  • You only can access interest once you redeem the I bond.

Are I bonds a good investment?

Whether an I bond is right for you depends on your savings strategy and goals. As a government-backed security, I bonds can fit well in a low-risk investment strategy that includes a component aimed at keeping up with inflation, especially as you near retirement. The inflation-based interest rate makes I bonds ideal for short-term savings goals, like a down payment on a retirement home or funding college expenses. If your savings goals are long-term, you may want to consider more aggressive vehicles, like high-growth stocks. They are riskier but come with the potential for a greater return.

If you're ready to take a look at whether Series I bonds could fit into your investment plan, contact your local Thrivent financial advisor to discuss the next step forward.

To purchase a savings bond, explore current rates or expand upon the content in this article, review the "Savings Bonds" drop down menu at Prior to investing in any type of savings bond, read the site’s Terms & Conditions (under Legal Information) which apply to, and all other websites operated by Fiscal Service.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Investing involves risk, including the possible loss of principal.