Series I Bonds

Summary of Series I Bonds

by Quint Tatro & Daniel Czulno, CFP® a passionate look at everything money from budgeting, savings, investing, stocks, bonds, debt. For those that enjoy Dave Ramsey, Jill On Money, Smart Money, BiggerPockets it’s worth a listen!, Bleav

13m•November 14, 2025
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Overview of Series I Bonds

This episode of DIY Money (hosts Quint Tatro & Daniel Czulno, CFP®) answers a listener question about Series I Savings Bonds (I‑Bonds). After some opening banter about homeownership headaches and surprise landscaping costs, the hosts explain how I‑Bonds work, why they were suddenly popular during recent high inflation, where they stand now, and practical alternatives and considerations for holders.

Key topics discussed

  • Why I‑Bonds spiked in popularity during the inflation surge (very high inflation component).
  • How I‑Bonds calculate interest (fixed + inflation components; rate adjusts every 6 months).
  • Current attractiveness vs. alternatives (high‑yield savings accounts, Treasury securities).
  • Important rules and penalties (purchase limits, early‑redemption interest penalty).
  • Practical steps: selling I‑Bonds, re‑deploying proceeds, and where to buy treasuries.

How I‑Bonds work

  • Two-part interest:
    • Fixed component: set when the bond is issued and remains constant for life of that bond.
    • Inflation component: adjusts every six months based on CPI‑U (consumer price index for urban consumers).
  • Overall rate resets every six months (combination of the two components).
  • Historically low fixed rates, but inflation spikes created very high effective yields for a period (recently as high as ~9% during peak inflation).

Current rates & comparisons

  • As discussed on the episode:
    • A new I‑Bond today would likely have a fixed component around ~1.1% plus an inflation component near ~3%, yielding roughly ~4% for the next six months (rates change, check current Treasury/I‑Bond rates).
    • Many older I‑Bonds were issued with a zero fixed rate, so holders only benefit from the changing inflation component.
  • Alternatives:
    • High‑yield savings accounts often offer 3–4% (convenient and liquid).
    • Treasury notes/bills (purchased via TreasuryDirect) can lock yields around similar levels for set maturities, sometimes higher depending on term.
  • Practical note: government service disruptions (e.g., shutdowns) can temporarily affect access to TreasuryDirect.

Pros & cons of holding I‑Bonds now

Pros:

  • Inflation protection since the rate adjusts with CPI‑U.
  • Backed by the U.S. government (very low credit risk).
  • Tax advantages: federal tax deferred until redemption; possible state/local tax exemption; educational tax exclusion may apply.

Cons:

  • Rate volatility: composite rate can fall as inflation eases.
  • Low purchase limit: $10,000 per person per calendar year (plus limited options for buying with tax refunds).
  • Liquidity restriction: must hold for at least 1 year; redeeming within 5 years forfeits the last 3 months of interest.
  • Fixed component locked at issuance — older bonds may have low/zero fixed rates.

Practical steps & considerations

  • Check current I‑Bond rate on TreasuryDirect before making decisions.
  • If you need liquidity or a stable locked yield, consider selling (if past 1 year) and:
    • Move proceeds to a high‑yield savings account (good for emergency funds), or
    • Buy Treasury securities via TreasuryDirect to lock a multi‑year rate.
  • Remember the 5‑year rule: selling I‑Bonds before holding 5 years loses the last 3 months of interest.
  • You can only buy $10,000 per person per year in electronic I‑Bonds through TreasuryDirect.
  • Beware offers that claim unusually high guaranteed yields — they’re often scams or extremely risky products.

Notable quotes & insights

  • “They were all the rage because there was this window where the inflation rate was so high and the government adjusting rate on the I‑Bond was so much higher than you could get anywhere else.”
  • “Shop for yield — every quarter, every day if necessary. Don’t let cash sit in non‑interest checking accounts.”
  • Warning reminder: if someone offers liquidity plus outsized, guaranteed yields (e.g., 8% with no downside), “run the other way.”

Action items / recommendations (for I‑Bond holders)

  • Check your bond’s fixed rate (set at issuance) and current composite rate on TreasuryDirect.
  • If funds are for an emergency fund, consider moving to a high‑yield savings account for liquidity.
  • If you want to lock in yield, sell (if allowed) and buy Treasury notes/ETFs through TreasuryDirect or appropriate brokerage.
  • Only sell with full awareness of the 3‑month interest penalty if within 5 years.
  • Diversify where you hold cash — avoid leaving large balances in non‑interest checking accounts.

Episode extras

  • Hosts open with light personal stories about homeownership, basement water problems, and a shockingly expensive landscaping quote.
  • Sponsors and ad reads are included throughout (1‑800‑Flowers, Progressive, State Street DIA ETF, Walmart, McDonald’s, Carvana, Indeed).

If you own I‑Bonds, the core takeaway is: they were highly attractive during high inflation, but today you should compare the current composite I‑Bond rate to HYSA and Treasury yields, account for liquidity needs and penalties, and act accordingly.