Broker Check

The 5 Rules of I-Bonds

October 13, 2022

In 2022 there is one big topic on everyone’s mind, inflation. The government is focused on how to slow down the rate of inflation primarily through raising interest rates. Investors are focused on how to hedge the risk of inflation and avoid erosion of their money value. One way that investors are doing this is through purchasing Series I savings bonds or I-Bonds from the federal government. The “I” in these bonds stands for inflation because the bond’s composite (earnings) rate is set using a fixed rate plus an inflation-index. I-bonds have been around since the late 1990’s but have recently become a popular investment option due to their never-before-seen returns. The average composite rate on these bonds have been around 2% for the past twenty years, but for the 6-month period starting May 2022 the rate is 9.52%, which is over 4 times the average return. Most investors in 2022 are seeing losses on their investments, so an almost 10% return that is backed by the government sounds too good to be true. However, before putting money into this unique investment option, there are some important rules to know.

Rule One: I-Bonds must be purchased directly from the federal government.

Most investors are used to purchasing their investments in the secondary market from third parties. However, I-Bonds are not sold in the open market. Investors must go to in order to purchase these bonds. It takes only a few minutes to set up an individual account. It requires the person’s social security number as proof of US citizenship or residency, address, a checking or savings account, and email address. Once the account is established, investors use the same site to purchase the bonds and can even establish periodic investments into I-Bonds. Due to this process, financial advisors cannot manage these investments directly, nor can the investments be held in your existing retirement or individual accounts.

 Rule Two: I-Bonds have a composite earnings rate calculated twice a year

The composite or earnings rate on I-Bonds is made up of two parts. One is fixed at the time of purchase and lasts 30 years. This is currently set at 0%. The other portion is based on an inflation-adjusted rate that is calculated twice a year on May and November 1st. This is calculated by the U.S. Treasury using the CPI inflation rates from the previous six months. This is currently set at 9.52%, as previously mentioned.

Investors who purchase a new I-Bond in the middle of a period will earn the interest rate set the previous May or November. They will continue to receive the “old” rate for a 6 month period and then the subsequent 6 months they will receive the new rate. For example, if an investor purchases an I-Bond in October 2022, they will continue to receive the 9.52% current rate until April 2023. Furthermore, if investors purchase I-Bonds mid-month it is assumed that they purchased it at the beginning of the month. This could potentially give an investor 30 days of “free” interest.

Earned interest is shown on the Treasurydirect website for each I-Bond purchased, so the investor does not need to calculate these rates themselves, as they can get complicated when purchased mid-period. 

Rule Three: I-Bonds cannot be redeemed until held for one year

I-Bonds must be held for a minimum of one year, up to a maximum of thirty years. Furthermore, if the bond is cashed in before being held for five years than the investor will lose the last three months of interest prior to the redemption. Therefore, investors expecting to invest in I-Bonds for the short-term gain will not receive a full 9.52% return. Most likely, the rate for these bonds will decrease in November 2022 based on the most recent CPI reports. If it reduces down to 6%, as an example, and the investor cashes out after 12 months (therefore losing 3 months of interest), they will most likely walk away with a realized rate closer to 5.86%.

 Rule Four: Earnings on I-Bonds are exempt from state and local taxes, but are taxable on the federal level

I-Bonds are taxable on the federal level. However, the investor can defer the tax payments until the year the bond is cashed in. Alternatively, the interest can be reported and paid each year. Additionally, if the bond is redeemed in the same year as the investor incurs higher education expenses, the earnings may be tax-exempt through a special education exclusion.

 Rule Five: I-Bond purchases are limited to $10,000 a year per person

Investors can purchase electronic I-Bonds in any denomination amount above $25 in increments of one penny up to $10,000. Paper I-Bonds are also available. These limits are applicable to each separate social security number, including minors, businesses, and trusts. In addition, there is a program to purchase I-Bonds, up to $5,000, using tax refunds (limit one per tax return).

Another way investors can purchase I-Bonds is through gifting. There is no limit on how many I-Bonds can be purchased for gifting. However, the receiver of the gift is still limited to the $10,000/year. Therefore, if purchasing an amount greater than $10,000, the bond continues to earn the current composite rates but is unable to be accessed until the receiver does not meet the purchase limit themselves in any given year.

Although the limit is stated at $10,000 a year, through some unique strategic planning using the information stated above, a family of four could purchase over $100,000 in I-bonds realized over a two-year period. Please, contact one of our team members if you would like more information on this strategy.


Given all of these characteristics of I-Bonds, it is important to talk with a financial advisor before determining if this security fits into your specific portfolio. To speak with one of our financial advisors, please see the “team” tab on the G5 Financial Group website for contact information or email Anna Fanning at