Is rising inflation putting pressure on your financial plans? As covered in our report, “Interest Rates, Inflation, and Investment Strategy,” the core defense against inflation is maintaining a well-structured investment portfolio. But beyond your main portfolio, there’s still a useful tool in the fight against inflation: U.S. Series I Savings Bonds (“I Bonds”).

While not a complete solution, I Bonds offer inflation-adjusted interest and are designed to preserve purchasing power over time. They may be especially helpful for emergency funds or medium-term cash reserves.

What Are I Bonds?

I Bonds are savings bonds issued by the U.S. Treasury. Their return consists of two components:

Fixed Rate + Inflation Rate = Composite Rate

• The fixed rate is set when you purchase the bond and remains the same for its 30-year life.
• The inflation rate adjusts every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U).

As of mid-2025, newly purchased I Bonds offer a composite rate of 3.98%, reflecting a blend of a fixed rate and a current inflation adjustment. The Treasury announces new rates every May and October.  

Even if inflation moderates, the fixed portion of an I Bond’s return adds value over time, especially now that fixed rates are positive again (they were 0% for many years).

Key Features of I Bonds

Purchase Limits

• You can buy up to $10,000 per person per calendar year through TreasuryDirect.gov.
• You can also buy up to $5,000 in paper I Bonds using your federal tax refund.

Liquidity

• I Bonds must be held for at least one year.
• If redeemed within the first five years, you’ll forfeit the most recent three months of interest.

Tax Treatment

• Federal income tax on I Bond interest is deferred until you cash out or the bond matures.
• State and local taxes do not apply to I Bond interest.
• In some cases, I Bond interest may be tax-free if used for qualified education expenses, subject to income limits.

Why I Bonds Can Still Make Sense

Inflation has eased compared to recent years, but it remains higher than the historical average. Interest rates are also holding steady at higher levels, with 10-year Treasury yields hovering around 4.3% and mortgage rates near 6.5%.

Although I Bond rates are lower than the peak levels seen in 2022, their inflation protection and guaranteed principal still make them an appealing option for:

• Emergency savings
• Intermediate-term goals (e.g., tuition, home upgrades, large purchases)
• Diversifying conservative cash holdings

Considerations Before Buying

Account Management

• I Bonds must be purchased and held through TreasuryDirect.gov, which doesn’t issue paper statements or tax forms.
• You are responsible for managing the account and remembering login credentials.
• Make sure your spouse or heirs are aware of your holdings for estate purposes.

Cash Flow Planning

• Since I Bonds are locked for 12 months, make sure you won’t need those funds in the near term.
• Avoid tapping into your emergency reserves unless you have sufficient liquidity elsewhere.

Final Thoughts

I Bonds remain one of the few investments that directly adjust for inflation, offer tax-deferred growth, and come with the safety of a U.S. government guarantee. While they may not be headline-grabbing anymore, they’re still a smart addition to a well-rounded financial plan.

Wondering how I Bonds fit into your broader goals? Whether it’s tax efficiency, cash flow, or long-term planning—we’re here to help you evaluate all your options and make confident decisions.