These days, a yield north of 4% on a safe place to park your cash is a pretty good deal. So Series I savings bonds, which are offering a 4.26% composite rate on newly issued bonds, are worth a look. And because their interest rate adjusts based on inflation, they're especially useful if you want to hedge against rising prices. In April, consumer prices rose at an annual rate of 3.8%, the highest level in nearly three years.

At TreasuryDirect.gov, you can purchase I bonds for a minimum of $25, with an annual limit of $10,000 per person. Backed by the full faith and credit of the U.S. government, I bonds offer an interest rate that has two components: A fixed rate that lasts the life of the bond and an inflation rate that resets every six months based on changes in the consumer price index. Together, they form the composite rate.

Each May 1 and November 1, the Treasury Department sets a new fixed rate and inflation rate that apply to bonds issued in the following six months. (The inflation rate also applies to older bonds when they reach their six-month adjustment date.) The 4.26% composite rate for I bonds purchased May through October of this year includes a 0.9% fixed rate. I bonds earn interest monthly, and interest is compounded (in other words, added to the principal) semiannually.

A 4.26% yield is better than the rate you can get on most other low-risk places to put your money, such as savings accounts and money market deposit accounts. But you can't cash out an I bond until you've held it for 12 months. And if you redeem it within five years, you forfeit the last three months of interest. So these bonds are best used for longer-term savings.

An I bond reaches maturity after 30 years, when it stops collecting interest. The interest earnings are exempt from state and local income tax, although you usually owe federal income tax. You can pay tax on the interest each year or defer it until you redeem your bonds. Although most people choose the latter, reporting the interest every year can be a smart choice if you'd rather avoid one large tax bill down the road.

What to do with older bonds

If you bought I bonds in 2022, when surging inflation resulted in a record-high composite rate of 9.62% on bonds purchased from May through October of that year, you may be thinking about how long to hold on to them. They have a 0% fixed rate, and their composite rate for the six-month earning period starting between May and October of this year is 3.34%.

If you don't need the cash right away, there's no rush to redeem the bonds, says David Enna, founder of Tipswatch.com, a website that tracks I bonds. Although you could cash them in now and use the money to buy new I bonds with a higher fixed rate, consider whether it's worth the early-redemption penalty of three months' interest, he says. And even after the five-year mark, when the penalty no longer applies, keeping the bonds until they mature isn't a bad idea. They'll continue to benefit from compounding interest.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Some investors have owned Series I savings bonds (I bonds) for many years, and the 30-year maturity date might be approaching. Others bought Series I savings bonds in recent years to insulate their portfolios from inflation and the ups and downs in the stock market.

Whether you are a recent investor in I bonds, have owned them for many years, or are pondering adding them to your investment portfolio, you should be aware of the federal income tax rules.

I bonds have important tax advantages for owners. Interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.

These rules might seem simple at first. But they're not as straightforward as you think, and they can get complicated pretty quickly.

For example, the tax treatment of I bonds varies depending on who owns the bonds, whether you gift the bonds to someone else, and, in some cases, how the bonds are used. Following are descriptions of how and when I bond interest is taxed under federal law in eight common situations.

Note: For people who own EE bonds, the federal income tax consequences are identical to those of I bonds. So this story is also applicable to you.

1. Tax rules when you own I Bonds

I bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally, 30 years) or when they're cashed in, whichever comes first.

However, deferring tax on the full amount of accrued interest for up to 30 years may sound like a great idea until you get the tax bill for three decades' worth of interest. Also, taking the tax hit all at once can push you into a higher federal income tax bracket, making the tax bill even more expensive than it needed to be.

2. How to report and pay taxes if you choose to report I Bond interest annually

Some I bond holders may want to report their interest annually and pay income tax each year rather than wait until they cash in the bonds or the bonds mature. But you won't get a Form 1099-INT every year. You will only get the 1099-INT when you cash in the bonds or when the bonds mature, whichever is earlier.

So how do you know how much interest to report each year? If you own the savings bonds through your online Treasury Direct account, you can see the interest earned each year in the account. If the savings bonds are on paper, you can use the savings bond calculator on Treasury Direct's website to help you figure out the interest to report.

You would report the interest each year on line 2b of your Form 1040. If you received $1,500 or more in interest during the year, you would also fill out Schedule B and attach it to your tax return.

3. How to report and pay taxes when you cash in I Bonds or they mature

If you cash in I bonds this year, you would report the interest on line 2b of your 2026 Form 1040 and pay tax to the extent you didn't otherwise include the interest income in a prior year. If you received $1,500 or more in interest during the year, you would also fill out Schedule B and attach it to your tax return.

If you keep the I bonds through the date they mature, generally 30 years, and you didn’t otherwise include the interest income in a prior year, you will be taxed on all the accrued but previously untaxed interest in the year of maturity, whether or not you cash them in. You would report interest income on your Form 1040 in the same manner as if you cashed in the I bonds.

If you are using the bond proceeds to pay for higher education, some of the interest may be exempt (see "Using I Bonds for Education" below).

4. Tax implications of co-owned I Bonds

For I bonds issued in the name of co-owners, such as a parent and child or grandparent and grandchild, the interest is generally taxable to the co-owner whose funds were used to buy the bonds.

However, that co-owner can choose to defer paying tax on the interest or report it annually. This is true even if the other co-owner redeems the bonds and keeps all the proceeds.

5. Gifting I Bonds

Savings bonds make great gifts. If you buy I bonds for someone else, such as your children, grandchildren or any other person, the interest is reportable by that person, provided the bonds are titled in his or her name. Just like any other holder of I bonds, the recipient can choose to defer paying tax on the interest until the earlier of the year the bonds mature or are cashed in, or he or she can report the interest annually.

What if you already own I Bonds and are thinking about gifting the bonds you own to a family member or other person? Gifting an I bond before maturity will accelerate taxation of the interest income. Giving away bonds you already own to someone else doesn't get you off the hook with the federal government for owing tax on previously untaxed interest. If the bonds are reissued in the gift recipient's name, you're still taxed on all that interest in the year of the gift.

6. Donating I Bonds to charity

Donating an I bond before it matures to charity while you're alive will also accelerate taxation of the interest income. As with gifts to other people, giving away bonds you already own to your alma mater, favorite museum or other charitable organization doesn't let you avoid the tax on previously untaxed interest. You're still taxed on all that interest in the year the donation is made.

7. Inheriting I Bonds

If you inherit I bonds that haven't yet matured, who is taxed on the accrued interest that went untaxed because the original owner deferred the interest? It depends. The executor of the decedent's estate can choose to include all pre-death interest earned on the bonds on the decedent's final income tax return. If this is done, the beneficiary reports only post-death interest on Form 1040 for the year the bonds mature or are redeemed, whichever comes first.

If the executor doesn't include the interest income on the deceased owner's final federal income tax return, the beneficiary will owe taxes on all pre-death and post-death interest once the bond matures or is redeemed, again whichever is earlier.

8. Using I Bonds for education

One way to avoid paying federal income tax on accrued I bond interest is to cash in the bonds before or on the maturity date and use the proceeds to help pay for college or other higher education expenses for you, your spouse or your dependent. But there are lots of rules and hurdles to jump over to be able to take advantage of this tax perk. For instance:

• You must have purchased the bonds after 1989 when you were at least 24 years old.
• The bonds must be in your name only.
• The bonds must be redeemed to pay for undergraduate, graduate or vocational school tuition and fees for you, your spouse, or your dependent. (Grandparents can't use this tax break to help pay for their grandchild's college tuition unless the grandparent can, on their 1040, claim the grandkid as a dependent.)
• Room and board costs aren't eligible for the exclusion.
• The exclusion is subject to strict income limits. For 2026, it begins to phase out at modified adjusted gross income (modified AGI) of more than $152,650 for joint filers and $101,800 for others and is completely phased out at modified AGI of $182,650 for joint filers and $116,800 for other filers.

The term modified AGI has many different definitions, depending on what tax break you are using it for. For purposes of the exclusion of I-bond interest to pay for college education, modified AGI starts with the AGI on line 11 of your Form 1040 (figured without taking into account any I-bond interest exclusion). Then one adds back tax breaks from living abroad, the exclusion for employer-provided adoption assistance, and any deductions for student loan interest.

If the proceeds from all savings bonds cashed in during the year exceed the qualified education expenses paid that year, the amount of interest you can exclude is reduced proportionally.

Use IRS Schedule B and Form 8815 to report and calculate any excluded I bond interest used for education.

Related

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• The Current I Bond Rate is Mildly Attractive: Here's Why
• Types of Income the IRS Doesn't Tax

As more and more of my family members and friends have kids, and as those kids hit milestone ages, I've been trying to strategize the best gifts for them. And, no, I'm not talking about keeping up with the latest Tickle Me Elmo trends.

I'm fine with being the boring adult who hands over an envelope at birthday parties, knowing of course the children won't understand it now, but we're giving them investments they'll appreciate when they're grown, whether in the form of 529 contributions, gifted stocks or bonds. Plus, I honestly just hate the idea of gifting plasticy toys that'll get forgotten within a few months and end up in a landfill. Blame the millennial in me.

So, as my niece approached her fifth birthday and asked for anything Elsa-related, I was planning to give her a savings bond. But her birthday was in the month of April 2025, a volatile period in the market that introduced long-term economic uncertainty due to President Donald Trump's tariff policy.

As all eyes were on the 10-year Treasury yield, I wondered if it's still a good idea to gift savings bonds. Here's what I learned.

Why gift savings bonds?

Let's start with the basics of what U.S. savings bonds are: You lend money to the government (by buying a bond) and, in return, the government pays it back along with interest.

There are two types, or "series," of U.S. savings bonds, EE and I. The difference between EE and I bonds is that I bonds are linked to inflation. When you purchase an EE bond, it comes with an interest rate that stays set for 20 years. When you purchase an I bond, it comes with a combination of a fixed interest rate and a variable one that changes every six months depending on current inflation.

They're both considered safe, as they're backed by the full faith and credit of the U.S. government, and they both earn interest for 30 years unless you cash it in before then. The interest isn't huge — right now on EE bonds it's 2.6% — but it's safe growth.

That's why people have traditionally considered them useful gifts for newborns and young children: You gift it when they're young, and then when they're adults they can cash it in with interest and use it for themselves.

"If the person can have the stamina to hold on and not cash it in" within a few years of reception, they're a good form of "forced savings," said Paul Miller, CPA, founder of Miller & Company in New York City.

I can vouch for that personally. I cashed in savings bonds to spend when I was getting married, with thanks to my parents' friends' foresight. After that experience, I liked the idea of my niece and nephews having that opportunity for themselves in a few decades.

How do you gift US savings bonds?

The process to gift them, however, is complicated.

While the standard process used to be to get paper bonds and just hand them over, now, the process takes place online through TreasuryDirect. If you've ever used the government's site before, you know it's clunky, so that's the starting point.

In order to gift a savings bond, you need a TreasuryDirect account — and so does the recipient. And if the recipient is a minor, their parent or custodian also needs a TD account in order to set the child's account up in the first place.

Now, let's say everyone involved has a TreasuryDirect account. In order to gift an EE or I bond, you need the child's full name, Social Security number and TreasuryDirect account number. And once you purchase it, you have to hold it in your own account for at least five business days before you can send it to the recipient.

It takes many more steps than just writing a check, which can be a barrier for people thinking of gifting savings bonds.

"They’re pretty outdated in terms of how it was designed," Christine Lam, CFP, financial planner at Financial Investment Team in Portland, Oregon, told Kiplinger.

Still, there's one big benefit of the process being online: You don't risk the parent or child losing the piece of paper before it gets cashed in. "People have a tendency to misplace or lose the whole thing," said Miller.

Are savings bonds good gifts?

As for the overall question of if you should even bother getting savings bonds as gifts, as with anything, it's something of a personal choice more to do with risk appetite.

Historically, savings bonds are safe investments. But "safe" doesn't mean you get the best returns, and the stock market has largely outpaced the returns of savings bonds in recent decades.

David Payne, staff economist for The Kiplinger Letter, said his grandparents purchased savings bonds for his sons when they were born, and he's still kicking himself "for not cashing them out and putting it in the stock market." But, he added, "Of course, that type of stock market performance may not be repeated in the next 20 years."

That return factor could explain why savings bonds' popularity dropped off in the new millennium. Treasury data show, adjusted for inflation, $5.8 billion of EE bonds were sold in 1999. In 2024, just $85 million were. I bonds had a jump in popularity in 2021-2023 as rates leaped with inflation, but that's generally cooled off too.

Popular interest in bonds (as opposed to interest on bonds), too, has dropped off. Here's Google search volume for the term "savings bonds" since 2004:

The lower, if safer, returns are why Payne says, "I'm not totally against [savings bonds as] stocking stuffers as long as they're not the only thing."

Your gift might get higher returns if, instead, you gifted a stock investment or contributed to a 529, which is used for tuition payments. (And if you're a grandparent, don't forget about the grandparent loophole for 529s.)

But if you knew a child's 529 was already taken care of and didn't need more funds, and if you just wanted to give the child some money they could spend on whatever they wanted as an adult, a savings bond is "still not going to be the best option to earn her the highest return in a relatively safe investment," said Lam.

Instead, she recommends, "I think [your niece would] be much happier with some sort of investment vehicle," like a broad-based index fund through a custodial investment account.

As a final point, let's say your risk tolerance is low and you just want to gift a safe savings bond. Miller, the CPA, warns that you should take into consideration who you're gifting to and what you want it to be used for.

"Is the person going to hold it till maturity? Twenty years is a long time," he said.

There's always a risk the savings bond will be cashed in long before maturity, in which case there's missed growth opportunity. If a savings bond is cashed in before five years, the recipient will lose out on three months of interest.

Plus, Miller cautioned, if you give it to, say, a teenager with a phone, "they'll Google it and they'll cash it in," he predicted. Then, your intention of gifting a forced saving for them to use in the future is dashed.

Are savings bonds safe?

In the wake of Trump's back-and-forth on tariff policy, some people have expressed hesitancy about the future of the U.S. economy. There are risks of a recession and the 10-year Treasury yield surged, indicating a lack of confidence.

"There's been a lot going on in the news, and I understand where clients are coming from where they’re asking, 'Where is my money even safe anymore?'" said Lam.

First, remember that a recession is short-term while a savings bond is longer-term. Second, remember that the deal of a savings bond is that it has fixed interest rates (even the I bond has a fixed component).

Third, Lam said, remember that our financial system is predicated on the Treasury Department and the Federal Reserve.

"It would be pretty substantial if the entire Treasury Department and the Federal Reserve was wiped out," she said. Basically if that were the case, we would have bigger problems to worry about than the fate of a savings bond you gifted.

"The main question is if the growth is worth it, and will the value of the dollar and Treasury still be solid after 20 years." said Jason Brown, founder of the Brown Report, a financial literacy company. "The reality is no one knows, but if we look at history, as of right now we do not have another currency that is going to overthrow the dollar and get widely adopted."

Lam added that a bigger change as a result of this presidential administration might be how you're able to access your money through the TreasuryDirect website. Earlier this year, the Treasury Department granted Elon Musk and the Department of Government Efficiency (DOGE) access to the federal payment system, so maybe how the TreasuryDirect site works will change. And to be completely honest, if they make the site more intuitively useable and up to the standards of the modern-day internet, I would find it a welcome fix.

Should you gift an EE or I savings bond?

Now, let's say you've taken all this into consideration and decided you want to gift a savings bond. Safe is safe, and you think they'll appreciate the forced savings as adults. Should you go with an I or an EE bond?

"EE bonds offer a fixed interest rate and has a guarantee to double if held 20 years regardless of the fixed rate and continues to earn interest for up to 30 years," said Brown. "If you want to park some money away for a child for 20 years with a guarantee it will double and never go to zero, this is not a bad option as a gift to a child."

And what about inflation?

"The rate on I bonds, which currently pay 3.11%, will adjust every six months, based on inflation, so unless you believe inflation is going to average less than 2.6% annually during the coming 20 years, I bonds offer more protection against inflation," said Jim Patterson, managing editor of The Kiplinger Letter.

"If you think inflation will average less than 3.5% over the coming 20-plus years, and the recipient of the bond is willing and able to hold it for at least 20 years, the EE bond looks better. But 20 or more years is a long time to count on inflation staying relatively low," he continued.

Overall, Brown calculated, if you invested $10,000 right now for 20 years at current rates, a series EE bond will be worth $20,000 and an I bond will be $18,450.

But if you invested that in an S&P 500 ETF at the 10.13% nominal annual return since 1957? It'll be $69,000.

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Since 2012, when banks stopped selling paper savings bonds, buyers have been limited to making their purchases electronically, with one exception: You could buy up to $5,000 in paper series I savings bonds (I-bonds) with your IRS tax refund each year. 

But starting January 1, 2025, that option will no longer be available.

Why are paper I-bonds being ditched?  

The Tax Time Savings Bonds (TTSB) program was launched in 2010 to give tax filers the ability to buy paper I-bonds using their tax refunds. However, on average, only 35,000 people used this program to buy paper bonds each year, according to the IRS. 

That represented just 0.03% of all tax filers, and less than 10% of I-bond purchasers. The IRS says that running the program is costly and mailing paper bonds leaves them open to fraud, theft, loss and delays.

Can I still buy paper I-bonds if I haven’t filed my 2023 tax return yet?

Before the program ends, there’s still a chance to buy paper I-bonds if you received an extension to file your 2023 tax return with a deadline of October 15, 2024. 

You’ll need to fill in IRS Form 8888, and your bonds will be mailed to you once your tax return has been processed.

What should I do with my existing paper I-bond(s)?

While there’s no obligation to do so, you can convert paper I-bonds to electronic bonds using TreasuryDirect. It’s free to do, and you’ll need to set up an account if you don’t already have one. 

Be warned, however: TreasuryDirect can be hard to navigate. And if you’re not ready to go electronic, you can hold onto your paper I-bonds until you’re ready to cash them.

Should I buy electronic I-bonds in future?

At TreasuryDirect.gov, you can buy up to $10,000 in electronic I-bonds each year, and also $5,000 in I-bonds if you use your tax return to buy them. Bonds issued from May through October 2024 have a composite yield of 4.28%, including a fixed rate of 1.3% and an inflation rate (which adjusts every six months) of 1.48%. 

In November, the Treasury Department will set a new semiannual inflation rate based on the consumer price index, as well as a fixed rate for bonds issued from November 2024 through April 2025.

While rates may not compare especially well to the best high-yield savings accounts and the best CD rates, which are giving returns over 5%, bonds are still considered a stable and low-risk option for growth.

Note: A version of this item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In my past few columns, I lauded bond ladders and high-yielding funds that own receivables such as bank loans and credit card obligations. With the Federal Reserve getting closer to easing credit as economic indicators cool down enough to disturb the stock market, it is ever wiser to guarantee potent income. Those effortless 5% cash returns will not vanish overnight. But by Thanksgiving, 4% is a realistic expectation for money market funds and Treasury bills.

For many of us, 4% is perfectly fine — especially if your personal inflation experience is diminished. That often varies with whether you rent or own and what you pay for car and property insurance. 

But if 4% is inadequate, or you remain inclined to take risks, the combo of falling yields and retreating expectations for inflation in the bond market stands to reward higher-coupon and higher-dividend holdings. (Those market expectations for inflation run lower than what consumers refer to as the cost of living and so can accelerate a decline in interest rates.)

Consider the week of July 29, when the Fed’s brass said it is about time to cut rates, and bad tech-company results then bludgeoned 1500 points off the Dow Jones industrial average and 1000 from the frothy Nasdaq composite. 

But beneath the red on those indexes, the markets emphatically and unambiguously supported low-risk, high-dividend names such as AT&T, Realty Income, Verizon, and the regulated electric and water utilities. (High-growth, lower-dividend utilities and real estate investment trusts did take their lumps, though.) 

Bonds’ big move. The bond market, meanwhile, rallied sharply. Among the gainers were our most esteemed actively managed bond funds, including Dodge & Cox Income (DODIX) and Fidelity Strategic Income (FADMX), which saw healthy upticks in net asset value atop their ongoing 4.7% and 5.3% distributions. 

Readers can stand by these multisector bond funds, as well as high-yield and short-duration funds I’ve previously recommended, such as exchange-traded funds BlackRock Flexible Income (BINC, $53) and PGIM Short Duration High Yield (PSH, $50) and mutual fund RiverPark Short Term High Yield (RPHYX). 

The Fed does not control the market rates that feed into their payouts the way it does with bank deposits and money funds, so the distributions, which currently run 5.7%, 9.1% and 5.4%, respectively, will not shrink much, if at all, in the near term. And easier credit terms stand to bolster the business prospects for the industrial and financial firms whose debts these funds hold.

Another extra-yield idea: The Federal Farm Credit Banks and the Federal Home Loan Banks are offering new bonds due in seven to 12 years with coupons of 5.7% to 6.0%. These government agency bonds are callable at par value six months after the date of issue, but that still means a premium yield for at least that long, as well as a chance to sell the bonds for a profit before the initial call date if these lenders’ rates on their next rounds of financing are 0.5 or 1 percentage point lower. 

And as for cash: As I write this, you could still originate a two-year CD ladder with an average percentage yield of 4.7%, or a one-year version for 4.8%. These yields stand to be lower in a few weeks and certainly once the Fed’s first cut is official. 

And if the next few monthly or quarterly jobs, retail sales, housing starts and other broad economic indicators soften, the central bank is unlikely to reduce short-term rates by more than 0.5 percentage point right away. The days of zero interest rates and “cash is trash” are not going to return, but neither will the appetite for higher yields be going away.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Even after two favorable monthly inflation reports, cash and bond yields remain high and steady. It continues to be a buyer’s market. Still, readers are often uncertain how best to proceed, particularly with new or rollover money. You may be tempted by a basic broad-based bond market index fund. But you can do better.

Your goal should be two guarantees: high yield to maturity and full recovery of principal. Neither is assured using index-based exchange-traded funds. An actively managed, go-anywhere fund from an ace manager such as Baird, Fidelity or Pimco will out-return the indexes over the years, but there is near-term price risk if managers mistime bets or if hostile reports on jobs or inflation or another trading signal rips into bond values. 

If your choices are limited within a 401(k) or other retirement plan, choose a short or ultra-short bond fund option, if possible. If not, stay with cash for now. The inverted yield curve, with short-term yields the highest, remains your friend and makes cash profitable and safe.

Looking ahead at bonds

But if you suspect cash yields will drift down and want to lock in the current rates without near-term price risk, my preference would be to infuse some dollars into individual bonds or into target-maturity funds or ETFs, such as Invesco BulletShares or iShares iBonds ETFs. If you have an account with Schwab, Fidelity or E*Trade, it is neither difficult nor costly to research, compare and buy single bonds. Then you, and not a fund manager or the Federal Reserve, control how much and when you get paid and the timing of repayment of the principal.

Normally the best method is to ladder maturities, arranging for parts (rungs) to mature in succeeding quarters or years so you both cement the best yields along the curve and know you will have money to roll over at specific times. You can use Treasuries, high-quality corporate, bank or utility bonds, municipals, high-yield bonds, or a mix of all of them. You can even request a brokerage’s bond platform to set it up for you.

I went to Schwab’s tool to ladder either Treasuries or certificates of deposit. Given the rate-curve inversion, one-year ladders have higher average yields than longer ones. A step stool of T-bills of three, six, nine and 12 months pays an average 5.25% to maturity; use CDs and you get 5.45% (as of May 31). A five-year ladder works out to 4.76% for Treasuries or 4.98% for CDs.

To beat that, of course, you can buy corporate bonds at a spread of one to two percentage points above Treasuries. If you navigate the bond listings, you can ladder one- through five-year BBB-rated bonds for an average 6% yield to maturity; I could recently order a five-step triple-B assembly from Synchrony Bank, Boeing, Ares Capital, Blue Owl and Boston Properties with an average yield to maturity of 5.98%, with none below 5.82%. It’s possible those bonds might flop around in value, but if your plan is to keep them to the end, that doesn’t matter — even if, say, Boeing were to be downgraded to junk status.

Or, you could use a mélange of BulletShares investment-grade, target-maturity corporate ETFs dated 2025 through 2029 for an average 5.3% — less than a BBB ladder due to its A and AA holdings. BulletShares charge just 0.1% and pay monthly, as oppsed to the semiannual interest payments from individual bonds. What matters either way is that you can roll over the principal on your own terms.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

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Some investors have owned Series I savings bonds (I bonds) for many years, and the 30-year maturity date might be approaching. Others bought Series I savings bonds in recent years to insulate their portfolios from inflation and the ups and downs in the stock market.

Whether you are a recent investor in I bonds, have owned them for many years, or are pondering adding them to your investment portfolio, you should be aware of the federal income tax rules.

I bonds have important tax advantages for owners. Interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.

These rules might seem simple at first. But they're not as straight forward as you think, and they can get complicated pretty quickly.

For example, the tax treatment of I bonds varies depending on who owns the bonds, whether you gift the bonds to someone else, and in some cases, how the bonds are used. What follows are descriptions of how and when I bond interest is taxed under federal law in nine common situations. Hopefully, this information will help you trim your tax bill while planning for the future.

Note 1: Before 2025, taxpayers who were due a refund on their federal tax return could attach Form 8888 to their 1040 to request to use all or part of the money to buy up to $5,000 in paper I bonds. And people with a Treasury Direct account could use all or part of their tax refund to buy up to $10,000 of electronic I bonds. The IRS has ended this feature. If you want to buy an I bond, you must open an account with Treasury Direct.

Note2: For people who own EE bonds, the federal income tax consequences are identical to those of I bonds. So this story is also applicable to you.

I bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally, 30 years) or when they're cashed in, whichever comes first.

However, deferring tax on the full amount of accrued interest for up to 30 years may sound like a great idea until you get the tax bill for three decades worth of interest. Also, taking the tax hit all at once can push you into a higher federal income tax bracket, making the bill even more expensive than it needed to be.

Savings bonds make great gifts. But if you buy I bonds for someone else, such as your children, grandchildren or any other person, the interest is reportable by that person, provided the bonds are titled in his or her name.

Just like any other holder of I bonds, the recipient can choose to defer paying tax on the interest until the earlier of the year the bonds mature or are cashed in, or he or she can report the interest annually.

For I bonds issued in the name of co-owners, such as a parent and child or grandparent and grandchild, the interest is generally taxable to the co-owner whose funds were used to buy the bonds.

However, that co-owner can choose to defer paying tax on the interest or report it annually. This is true even if the other co-owner redeems the bonds and keeps all the proceeds.

If you cashed in I bonds last year, you must report the interest on line 2b of your 2024 Form 1040 and pay tax to the extent you didn't otherwise include the interest income in a prior year. The same reporting would be applicable for I bonds that you cash in during 2025.

If you received $1,500 or more in interest during the year, you would also have to fill out Schedule B and attach it to your tax return.

If you used the bond proceeds to pay for higher education, some of the interest may be exempt (see below).

If you keep the I bonds through the date they mature, generally 30 years, and you didn’t otherwise include the interest income in a prior year, you will be taxed on all the accrued but previously untaxed interest in the year of maturity, whether or not you cash them in.

You would report the interest on line 2b of Form 1040 and attach Schedule B if you earned $1,500 or more of interest.

If you cash the bonds in during the year they mature, and you use the proceeds to pay for higher education, some of the interest may be exempt (see below).

One way to avoid paying federal income tax on accrued I bond interest is to cash in the bonds before or on the maturity date and use the proceeds to help pay for college or other higher education expenses for you, your spouse or your dependent. But there are lots of rules and hurdles to jump over to be able to take advantage of this tax perk. For instance:

• You must have purchased the bonds after 1989 when you were at least 24 years old;
• The bonds must be in your name only;
• The bonds must be redeemed to pay for undergraduate, graduate or vocational school tuition and fees for you, your spouse, or your dependent;
• Grandparents can't use this tax break to help pay for their grandchild's college tuition unless the grandparent can, on their 1040, claim the grandkid as a dependent;
• Room and board costs aren't eligible for the exclusion; and
• The exclusion is subject to strict income limits. For 2024, it begins to phase out at modified adjusted gross income of more than $145,200 for joint filers and $96,800 for others. For 2025, it begins to phase out at modified adjusted gross income of more than $149,250 for joint filers and $99,500 for others.

If the proceeds from all savings bonds cashed in during the year exceed the qualified education expenses paid that year, the amount of interest you can exclude is reduced proportionally.

Use IRS Schedule B and Form 8815 to report and calculate any excluded I bond interest used for education.

Gifting an I bond before maturity will accelerate taxation of the interest income. Giving away bonds you already own to someone else doesn't get you off the hook with the federal government for owing money on previously untaxed interest.

If the bonds are reissued in the gift recipient's name, you're still taxed on all that interest in the year of the gift.

Donating an I bond before it matures to charity while you're alive will also accelerate taxation of the interest income.

As with gifts to other people, giving away bonds you already own to your alma mater, favorite museum or other charitable organization doesn't let you avoid the tax on previously untaxed interest. You're still taxed on all that interest in the year the donation is made.

If you inherit I bonds that haven't yet matured, who is taxed on the accrued interest that went untaxed because the original owner deferred the interest? It depends.

The executor of the decedent's estate can choose to include all pre-death interest earned on the bonds on the decedent's final income tax return. If this is done, the beneficiary reports only post-death interest on Form 1040 for the year the bonds mature or are redeemed, whichever comes first.

If the executor doesn't include the interest income on the deceased owner's final federal income tax return, the beneficiary will owe taxes on all pre-death and post-death interest once the bond matures or is redeemed, again whichever is earlier.

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During periods of high inflation like the one we've been living in, it can be a real challenge to find safe investments that will pay off without lagging the economy horribly.

This is when investments like Series I savings bonds, better known as I-bonds, come in.

However, there are some important things to learn before buying any, especially in terms of the pros and cons of these inflation-adjusted instruments.

What are I-bonds and how do they work?

Bonds are fixed-income investments that basically amount to a loan, usually either to a government entity or a company. Thus, they come with set terms governing the regular payments, interest and time period.

Certain kinds of bonds are considered safe because you know exactly when and how much you're going to get paid. Buying U.S. Treasuries is considered the safest for bonds because they're backed by the full faith and credit of the U.S. government.

I-bonds are actually a form of bond issued by the U.S. Treasury, but they differ from the standard Treasury bonds.

What makes I-bonds unique compared to other types of bonds is that they provide a bit of protection against high inflation.

In addition to paying a fixed interest rate that the Treasury sets, I-bonds also pay an inflation-adjusted variable rate determined by changes in the inflation rate as measured by the Consumer Price Index (CPI).

The Treasury Department sets the interest rates for its I-bonds two times a year, on the first business days in May and November.

The rate of return on these bonds is a composite rate that combines their fixed and inflation-adjusted rates.

For example, the current I-bond rate for those issued between May 1 and October 31, 2025, will have an interest rate of 3.98%.

This includes the rate set by the Treasury Department, 1.10% plus the variable component based on the inflation rate.

The pros of investing in I-bonds 

The headline benefit of I-bonds is the fact that their rates adjust for inflation, which is a massive advantage during periods of high inflation, although it becomes a disadvantage during periods of low inflation or deflation.

Additionally, I-bonds tend to earn higher returns than most investments during such periods, including the average stock. In fact, I-bonds often outperform many of the best-performing stocks as well during inflationary periods.

These Treasury-issued bonds generate high returns without all the risks of those other high-yielding investments because they're backed by the U.S. government.

Depending on the inflation rate, I-bonds can offer returns that are significantly higher than those of other low-risk investments like certificates of deposit (CDs) or high-yield savings accounts.

I-bonds are also attractive because investors bear almost no risk of losing their principal. The composite rate can never be less than 0%, even during deflationary periods when the inflation rate is negative.

All interest compounds, which also boosts your savings while your money is invested in I-bonds.

Finally, the income from I-bonds is sometimes exempt from tax for lower- and middle-income households that use it to pay for college tuition.

The cons of investing in I-bonds 

Of course, no investment is perfect.

There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds.

The option to purchase paper I-bonds ended in 2024. Buying paper I-bonds with your income tax refund is no longer possible as of January. However, tax filers will still be able to buy I-bonds online.

Another disadvantage to I-bonds is the fact that you have to purchase them directly from the Treasury via the website, TreasuryDirect.gov, which means you can't buy them through your brokerage with your other investments.

Because I-bonds are sold by the government, there's virtually no price or rate reporting, so you'll have to carefully track your purchases on your own without the help of a brokerage.

Further, I-bonds must be held for at least a year, so you won't be able to cash them out before a year is up if the rate plunges due to falling inflation.

In fact, you'll lose the last three months of interest if you redeem them before five years are up. Additionally, you won't be paid until you redeem them, so your investment is locked up until then.

Finally, the variable inflation-related component of the rate on I-bonds can make them pay nothing during periods of little to no inflation.

Bottom line

While it may seem like there are a lot of negatives to holding I-bonds, the positives may significantly outweigh them during times of high inflation. Of course, whether or not I-bonds are right for you depends on multiple factors.

For example, they probably aren't good for investors who need ready access to their funds because they're tied up for at least a year.

On the other hand, fixed-income investors who want a safe investment and think inflation will remain high may want to consider I-bonds.

However, those who think inflation will moderate might want to consider other types of bonds that may pay higher rates.

It may be a good idea to discuss your savings and investing goals with a financial adviser to determine whether I-bonds might make a good addition to your current portfolio.

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In 2022, a spike in inflation made normally staid Series I savings bonds almost as popular as tickets to Taylor Swift’s Eras tour. I bonds issued between May and October 2022 earned a six-month composite rate of 9.62%, creating a surge in demand from yield-hungry investors that briefly overwhelmed the TreasuryDirect website. 

I bond rates have since come down to earth; bonds issued between November 2023 and April 2024 pay a composite rate of 5.27%. Meanwhile, some certificates of deposit and high-yield savings accounts are paying more than 5%, and the recent yield on one-year Treasury bills topped 4.8%. Yields on Treasury inflation-protected securities (TIPS) — government securities that are indexed to the rate of inflation — are also attractive now, says David Enna, founder of Tipswatch.com, a website that focuses on I bonds and TIPS. 

But I bonds may still provide some benefits for long-term investors, particularly those issued between November 2023 and April 2024. And cashing in your I bonds may mean giving up some interest — if you can cash them in at all. 

I bonds consist of two components: an inflation rate, which is based on the consumer price index and is adjusted every six months from the bond’s issue date, and a fixed rate that remains the same for the life of the bond (up to 30 years).

You can’t redeem an I bond in the first year, and if you cash it in before five years have passed, you’ll forfeit the most recent three months of interest. (If you check your bond’s value at TreasuryDirect.gov within the first five years of owning it, the amount you’ll see will have the three-month penalty subtracted from it.)

Weighing the options to cash in your I bonds

With that penalty in mind, if you’ve owned an I bond for longer than a year but less than five years, is it worth redeeming the bond — which means giving up some of the interest you’ve earned — so you can reinvest the money in a higher-yielding investment? 

The answer depends on your goals, when you bought the I bond and the fixed rate for the bond, says Enna. For example, if you bought one in October 2022 — when many investors snapped up I bonds to capture the 9.62% rate for six months before the rate reset — your optimal redemption date was January 1, 2024, Enna says. 

The reason: Those bonds earn a 0% fixed rate and transitioned in October 2023 to a composite rate of 3.38%, which is well below what you can get from short- term Treasuries. If you wait to cash in the bond until three months after the rate resets, the interest penalty will apply entirely to the 3.38% rate, rather than some portion of the penalty applying at the higher 6.48% rate that the bond earned during the previous six months. 

“All I bonds purchased from May 2020 through Oct. 2022 have a fixed rate of 0.0%, so those are targets for redemption” says Enna. For I bonds purchased in September 2022, the optimal redemption date was December 1, 2023; for bonds purchased in August 2022, the optimal redemption date was November 1, 2023. Enna continued “I think all of those 0.0% I bonds are now paying either 3.38% or 3.94% — and have been for three months — so they could be targets for redemption.” 

For I bonds purchased in November 2022 through April 2023 — which couldn’t be redeemed until at least November 2023 — your optimal redemption date depended on the inflation-adjusted rate announced on November 1. The bonds’ inflation rate is now 3.24%. 

Enna advises to “target I bonds with a 0.0% fixed rate. If the fixed rate is higher, do not redeem. The fixed rate rose to 0.4% in November 2022 so any I bond purchased after that date should be held.

Likewise, you may want to hold on to I bonds issued between May and October 2023. Those I bonds have a fixed rate of 0.9%, which is the highest fixed rate in 16 years. No matter what happens to inflation in the future, you’ll lock in that rate for as long as you own the bonds. 

“My rule of thumb is, if you have a very attractive fixed rate, hold on to it as long as possible,” Enna says.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Series I bonds and EE bonds are popular U.S. savings bonds that offer a safe way to save. Choosing between the two can be difficult.

The best place to start is to understand the terms of each bond and then to compare respective benefits and drawbacks. 

Both bonds are solid investments that have minimal risk and virtually guarantee a return. You can’t go wrong in this situation. You can only do better.

Since 2011, you could buy up to $5,000 in paper series I savings bonds (I-bonds) with your IRS tax refund each year.

As of January 1, 2025, I bonds are only available electronically, and this option is no longer available.

These two investments are closely related

I bonds offer an inflation-protected return, ensuring your savings keep pace with rising costs.

EE bonds, on the other hand, provide a fixed-interest rate for the life of the bond, offering a predictable return.

Benefits of both I bonds and EE bonds:

Tax advantages. Both I bonds and EE bonds offer tax advantages, including federal tax deferral until the bond is redeemed or reaches maturity, and exemption from state and local taxes.

If used for educational expenses, they may be free from federal tax as well.

Safety: As a product of the U.S. Treasury, I and EE bonds come with a high degree of safety.

They are backed by the full faith and credit of the U.S. government, which significantly lowers the risk of default.

Risks of both I bonds and EE bonds:

Early redemption penalties: While you can cash in I and EE bonds after one year, if you do so within the first five years, you'll lose the last three months' interest.

This penalty can reduce your returns if you need to access your money early.

Limit on purchases: There's a limit on how much you can invest in I bonds and EE bonds each year.

Current interest rates

Interest rates for I and EE bonds reset every May and November. The last reset was May 1, 2025. 

The current I-bond rate for those issued between May 1, 2025, and November 30, 2025, is 3.98%. This includes a fixed rate of 1.10%.

Although the new rates are announced in May and November, the date when the rate changes for your bond is every six months from the issue date of your bond.

EE bonds issued between May 1, 2025 and November 30, 2025, bear an interest rate of 2.70%.

They will earn that interest rate for the first 20 years you hold the bond and may be adjusted after 20 years.

Bottom line

I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation.

On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.

Both share similar tax considerations, providing federal tax deferral and state and local tax exemption. 

The fundamental difference between them is the variable inflation interest rate offered by I bonds and the guaranteed 20 year doubling for EE bonds.

I-bond investors enjoy great flexibility. If inflation remains high, they can retain their bonds and profit. If inflation plummets, they can swap their securities for higher-paying conventional notes.

Meanwhile, those who own EE bonds are stuck.

While I bonds can offer better protection in inflationary times, EE bonds offer stability even in volatile market conditions.

Their relevance in your portfolio varies with market conditions and personal investment goals. 

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The yield on the 10-year Treasury increased 1.6 basis points to reach 4.258% on Wednesday afternoon, up from 4.22% on Tuesday. This is the highest level the yield has reached since June 13, 2008; according to MarketWatch, at Thursday’s level, the rate was on track to reach its highest level since Dec. 26, 2007. Additionally, the 30-year Treasury yield increased 3.2 basis points from 4.359% to 4.391% on Wednesday. On Thursday, the 30-year rate was on its way to establishing a 12-year high. 

On Thursday, the 10-year Treasury yield rose to over 4.31%, the highest level it’s been since the 2007-2008 global financial crisis. And as inflation-adjusted bond yields hit their highest level in 15 years, they’re “threatening steeper costs for many borrowers and raising concern on Wall Street about the potential fallout in the stock, bond and housing markets," reports the Wall Street Journal. "Though they don’t have to hurt stocks if investors are simultaneously lifting their outlook for corporate profits, they can reduce the appeal of riskier assets by offering investors a more attractive risk-free return if they hold Treasurys to maturity."

Investors anticipate that the Federal Reserve will need to keep interest rates higher for longer and that even more interest rate hikes may be needed, in order to bring inflation down to its 2% target. In fact, according to the CME FedWatch tool, Markets are pricing in an 86.5% probability that at their next meeting in September, the Fed will leave interest rates as they currently are. Markets are pricing in a 37% chance that there will be a 25-basis-point rate hike at the meeting in November.

At their last meeting, the Federal Reserve raised interest rates for the 11th time since March 2022, bringing the federal funds rate to a target range of 5.25% to 5.50%. In their policy statement, the Federal Reserve stated they were "strongly committed to returning inflation to its 2 percent objective." 

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Bonds help diversify  your portfolio and limit your exposure to risk. But they can be complicated. We can help you understand the basics of savings bonds and make them work for you.

Safe and secure

Savings bonds are backed by the full faith and credit of the U.S. government. Payment of the interest and principal is guaranteed. Savings bonds are non-transferable, which means you can't sell them to someone else. You can redeem them at anytime. But, if you own the bond for less than five years, you will lose the last three months of interest earned. 

Savings bonds will never be worth less than their face value, also known as par value.  At maturity, you will receive the full par value regardless of market conditions or interest rate changes. 

Tax advantaged

Interest earned from savings bonds is exempt from all state and local income taxes. The exemption doesn't extend to federal taxes, but the earning could be exempt if you use funds to pay for qualified education expenses and your income doesn't exceed the limit for the exclusion.

Education exclusion and qualified expenses 

Interest earned on savings bonds can be excluded from federal taxes when used for qualified education expenses paid for you, your spouse, or a dependent at a qualified postsecondary institution. Eligible expenses must be incurred during the same tax year in which eligible bonds are redeemed. The amount of eligible expenses is reduced by the amount of any scholarships, fellowships, employer-provided educational assistance, and other tuition reduction the student receives. 

Who is eligible for the education exclusion?  To be eligible for the education exclusion, the bond must have been issued to the owner after the owner reached age 24. If you are considering using I bonds to fund education savings, you should do so by purchasing the bonds in your name, not in the child’s name. 

Income limitations also apply. For 2023, the exclusion is reduced when modified adjusted gross income (MAGI) exceeds $137,800 if married filing jointly and  $91,850 for all other filers. The exclusion is eliminated when MAGI reaches $167,800 if married filing jointly and $106,850 for all other filers. These are 2023 limits and are adjusted yearly for inflation. 

The exclusion is not available to married taxpayers filing separately, if the student was gifted the savings bonds or the bonds were purchased in the student’s name before the student reached age 24.

What qualifies as an eligible educational institution? Post-secondary institutions, including vocational schools that meet the standards for federal assistance, such as guaranteed student loan programs, qualify.

What educational expenses qualify for the interest exclusion? Eligible educational expenses include tuition and fees, lab fees and other course expenses required for the enrollment of or attendance. Expenses relating to any course or other education involving sports, games, or hobbies are eligible only if required as part of a degree or certificate-granting program. 

What costs aren’t considered qualified expenses? The costs of room, board and books.

Types of savings bonds

There are three types of savings bonds in circulation EE bonds, I bonds and HH bonds. HH bonds are no longer available for purchase. 

There are two types of savings bonds sold by the Treasury: EE bonds and I bonds. Series EE bonds are the most common, and they are guaranteed to double in value after 20 years, regardless of changing interest rates. Series I bonds don't share this guarantee. 

EE bonds

Series EE savings bonds earn interest regularly for 30 years or until you cash them. EE bonds are issued in electronic form only. You must have a TreasuryDirect.com account to buy and manage EE bonds. EE bonds are sold at face value. The minimum purchase is $25 and maximum is $10,000 in EE bonds per year. 

These bonds have a fixed rate of interest that is set when you buy the bond. Interest is compounded semiannually, meaning that every 6 months the bond’s interest rate is applied to a new principal. The new principal is the sum of the prior principal and the interest earned in the previous 6 months. Thus, your bond's value grows both because it earns interest and because the principal gets bigger. You can get current rate information at TreasuryDirect.com  

I bonds

Series I savings bonds protect you from inflation. The actual rate of interest for an I bond is a combination of a fixed rate and an inflation rate. The combined rate can, and usually does, change every 6 months. The new rates are announced every May 1 and November 1. Rate changes for your bond occur every 6 months from the issue date of your bond.

I-bonds mature fully after 30 years, you can cash them in after a year. If you cash in the bond in less than 5 years, you lose the last 3 months of interest, but the interest accrued before that is yours to keep. U.S. savings bonds cannot be resold, only redeemed.

Like EE bonds, I bonds sell for face value and can be purchased electronically. Individual purchase limits for I-bonds are $15,000 per calendar year — $10,000 worth of electronic I bonds and $5,000 worth of paper I bonds. Paper I bonds can only be purchased using your federal tax refund.  

HH bonds

HH savings bonds were sold from 1980 through August 2004. They earn interest for up to 20 years. So the last HH bonds will stop earning interest in 2024. You cannot cash them at a bank or any other financial institution, they must be redeemed by mailing them in using FS Form 1522.  If the value of the bond(s) you are cashing is more than $1,000, you will need to have your signature certified.

Bottom line

U.S. savings bonds are a tax-advantaged way to save and pay for education expenses. The rules that govern the exclusion of earned interest can be tricky. Plan accordingly in order to maximize that exclusion. Although the interest rates are moderate, the principal is safe and your interest payments and redemption value are guaranteed by the full faith and credit of the U.S. government. 

If you aren’t saving for college, the bonds still offer a safe place to park your money. However, there are many Treasuries available that offer the same safety and the potential for a greater return. 

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Trying to decide if TIPS (Treasury Inflation Protected Securities) or I-bonds (Series I savings bonds) belong in your investment portfolio?

Both TIPS and I-bonds are government-backed investments that will protect your principal while earning interest.

Unlike other investments, the interest rate is periodically adjusted for inflation.

Let’s dig into their benefits, risks and differences and see which option matches your needs. 

What is a bond? 

Bonds are IOUs issued by corporations, federal, state and local governments and their agencies.

When you buy a bond, you become a creditor of the corporation or government entity.

You are owed the amount shown on the face of the bond (par value), plus interest. 

What are Treasury inflation-protected securities (TIPS)?  

Treasury inflation-protected securities (TIPS) are designed to provide inflation protection.

They are sold as five-, 10- or 30-year notes that are indexed daily to the inflation rate as measured by the Consumer Price Index (CPI).

Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term. 

Interest and earnings. TIPS owners receive interest payments twice per year. Payments on TIPS are based on the interest rate set at auction.

The principal amount will adjust every six months according to inflation, which in turn determines the interest payment.

Buying, redeeming and selling TIPS. New TIPS can be purchased at auction at TreasuryDirect or from a bank, broker or dealer.

The minimum purchase is $100 and TIPS are sold in increments of $100. The price and interest rate are determined at auction.

Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity.

When the TIPS matures, if the principal is higher than the original amount, you get the higher amount.

If the principal is equal to or lower than the original amount, you get the higher original amount.

What are I Bonds? 

Series I savings bonds (I-bonds) also protect you from inflation. I-bonds earn interest based on a fixed rate and inflation rate.

Your bond's value grows because it earns interest and the principal value gets bigger.

Unlike TIPS, you choose to report either each year's earnings or wait to report all the earnings when you get the money for the bond.

Even better, if you use the money for qualified higher education expenses, you may not have to pay tax on the earnings. 

Interest and earnings. The actual interest rate for an I-bond is a combination of a fixed rate and an inflation rate.

The combined rate can, and usually does, change every six months. The new rates are announced every May 1 and November 1, and the current I-bond rate is 3.98%.

Rate changes for your bond occur every six months from the issue date of your bond.

I-bonds earn interest monthly and it's compounded semiannually, meaning that every six months, the bond’s interest rate is applied to a new principal value.

The new principal value is the sum of the prior principal and the interest earned in the previous six months.

Your bond's value grows because it earns interest and the principal value increases.

Buying, redeeming and selling I-bonds. You can purchase electronic I-bonds at any time online at TreasuryDirect. The minimum purchase is $25, and the maximum annual limit is $10,000.

As of January 1, 2025, buying paper I-bonds with your income tax refund is no longer possible. Tax filers are still able to buy I-bonds online, however.

While I-bonds mature fully after 30 years, you can cash them in after a year. If you redeem the bond in less than five years, you’ll lose the last three months of interest, but the interest accrued before that is yours to keep.

There is no interest penalty for cashing in the bonds after five years. U.S. savings bonds can not be resold, only redeemed.

Bottom line

If inflation and investment safety are your chief concerns TIPS and I-bonds deliver both.

TIPS offers greater liquidity, and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds.

If you’re saving for education, I-bonds may be the better choice. Interest earned from I-bonds may be excluded from federal income taxes if you use the money for qualified education expenses and don’t exceed income limitations.

However, TIPS and I-bonds offer two great ways to save safely for the future. 

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Savers have been struggling to keep up with high inflation for more than a year now. Even as interest rates on savings accounts and other options rise, it has been nearly impossible to stay even with inflation on risk-free savings products, with one exception: inflation bonds from the Treasury Department. 

The U.S. Treasury’s I-bond, a savings bond that has its yield adjusted every six months to reflect current inflation, is due to be updated on May 1. Currently, purchasers of I-bonds get a 6.89% annual rate for the next six months, which surpasses just about every other rate on no-risk savings options anywhere. 

But on May 1, the rate will likely be adjusted to 4.1%: Still decent, but not as high as what savers can find on certificates of deposit, short-term Treasury bills and money market funds. Plus, those alternatives are likely to bump their rates up a bit more, assuming the Federal Reserve increases its benchmark rate again in May.

To understand why the new I-bond interest rate is likely to be adjusted down so much, you need to first understand how Treasury sets the rate every six months. The rate includes two components: A fixed-base rate that remains the same for the life of the bond, plus the six-month change in the consumer price index, annualized. 

Treasury doesn’t explain how it arrives at the fixed portion of the rate, which it set at 0.4% when it last updated I-Bond rates in November. We suspect the government will bump up that fixed rate slightly, to about 0.5%, in May. 

The rest of the rate is easy to calculate, since we know the inflation data from recent months that the Treasury will use in its calculation. For the upcoming adjustment, that variable portion is 3.6%. Add our estimated 0.5% fixed base rate and you get 4.1%.

The rate at the purchase date will be good for six months following the May reset, so you may want to hurry to beat the clock while you can still earn the current 6.89% rate. I-bonds can be purchased through Treasury Direct accounts at www.treasurydirect.gov. For more information on how I-bonds work, how to buy them, and what you need to know about their advantages and disadvantages, see this handy explainer. 

Though the potential return of U.S. Treasury I-bonds as a long-term investment is no sure thing, Americans have voted for them with their wallets: Billions of dollars of these formerly obscure securities were sold in 2022, including in a last-minute rush at the end of October of that year to capture the 9.62% rate.

The demand was so robust, it knocked the TreasuryDirect website, the only place these bonds can be bought, offline at times.

You can get them just fine today, now that the current I-bond rate is down. The rate is set every six months, in May and November, and is made up of two components.

One is based on the government's Consumer Price Index (CPI). Inflation has slowed since 2022, but the uncertainty around the impact of soaring energy prices due to the conflict in the Middle East remains a major question for price stability. The rate for I-bonds is down vs late 2022, but it's rising again. It looks like an attractive prospect in certain lights.

The other component of the I-bond return is a fixed rate — picked by the Treasury Department without further explanation — that will only apply to bonds issued May 1, 2026, through October 31, 2026.

That fixed rate is, well, fixed — unlike the variable inflation component, whatever the fixed rate was when the bond was issued, you’ll get paid that for as long as you hold the bond (and the term is 30 years).

The current I-bond rate, valid for bonds issued May 1, 2026, through October 31, 2026, is 4.26%. That includes a fixed rate of 0.90%.

To put that in context, the best high-yield savings accounts and the best CD rates are giving returns of about 4.0%.

Four months into 2026, the S&P 500 has a year-to-date return of 5.7%, though the ongoing conflict between the U.S. and Iran is ramping up volatility in the broader market. Investors wanting to protect portfolio returns should consider adding defensive stocks to their holdings.

While a 4.26% I-bond rate might not be all that much to write home about, the savings bonds are an attractive option for investors, too, because they offer stability and a guarantee.

What makes the current I-bond rate attractive?

Consider the fixed rate of an I-bond, which is an important component of what an I-bond is. That rate is fixed for as long as you hold the bond, which has a term of 30 years.

If you purchase an I-bond from now to October, you'll always get a return of at least 0.90%. That's not a huge return, but it's a guarantee — and considering that the most popular investment is cash, 0.90% for 30 years is a much higher return than you might get with cash just sitting in a checking account.

Here’s an interesting twist, and possibly a consolation prize for anyone who didn’t manage to get I-bonds when they were paying a higher yield in 2022: those bonds paid a fixed rate of zero.

While it might seem unimaginable now — as the Federal Reserve has cut interest rates nearly two percentage points after a lengthy period of higher rates, and other rates, including mortgages, are finally declining from levels not seen in decades — zero inflation or deflation could return.

If that happens, those who hold bonds bought from now to October 31 will continue to receive 0.90% interest, while holders of the 9.62% bonds will receive – at least so long as inflation is flat or negative — nothing.

If 0.90% seems laughably low, remember that a few years ago, savers looking to certificates of deposit, savings accounts and other low-risk investments would have been darn happy with that.

What to do with your I-bonds

First, I-bonds must be held for at least a year. There's no way to cash them before this period. Second, if you redeem them before five years from the time they were issued, the last three months of interest is lost.

Another key issue: There's a limit of $10,000 a year on how much you can buy in I-bonds.

In case you haven't noticed, I-bonds are a little complicated. Ultimately, for the moment, they present a reasonably attractive long-term option for safe cash growth.

Related Content

• TIPS vs I-Bonds
• Best Bond Funds to Buy
• I-Bonds: Pros and Cons of Investing
• How Are I Bonds Taxed? 8 Common Situations to Know

Series I savings bonds have drawn a lot of attention in the last few years as inflation flew. In 2022, billions of dollars of I-bonds were sold when their interest rate ran up to 9.62%.

As inflation has slowed, so have returns on I-bonds. The current rate on I-bonds is 3.98%, putting it under some of the best high-yield savings accounts, but I-bonds are still seen as attractive investments for certain situations.

Here, we’ve compiled answers to frequently asked questions about I-bonds.

How is the interest rate for I-bonds determined?

The composite rate has two parts: A fixed rate, which remains the same for the life of the bond, and an inflation rate, based on the consumer price index.

Each May 1 and November 1, the U.S. Treasury Department announces a new fixed rate and inflation rate that apply to bonds issued during the following six months. The inflation rate changes every six months from the bond’s issue date.

The fixed rate for I-bonds issued from May 1, 2025 through October 31, 2025, is 1.10% — and that will never change for as long as you hold the bond (I-bonds mature after 30 years).

How does interest accrue on I-bonds?

The bond earns interest monthly from the first day of the month of the issue date, and interest is compounded semiannually. Interest is added to the bond’s principal value.

You can’t redeem an I-bond in the first year, and if you cash it in before five years have passed, you forfeit the most recent three months of interest. If you check your bond’s value at TreasuryDirect.gov within the first five years of owning it, the amount you’ll see will have the three-month penalty subtracted from it.

When you buy a new bond, interest doesn't show until the first day of the fourth month following the issue month. If your bond has a July 2025 issue date, for example, interest is first posted in November 2025.

How much in I-bonds can I buy?

An individual can buy up to $10,000 per calendar year in electronic bonds through TreasuryDirect.gov.

As of January 1, 2025, buying paper I-bonds with your income tax refund is no longer possible. Tax filers will still be able to buy I-bonds online.

That’s just for the individual, though. A range of other entities can purchase I-bonds, including:

• Corporation
• Limited liability company (LLC)
• Sole proprietorship
• Partnership
• Professional limited liability company (PLLC)
• Deceased estate
• Living estate (court-appointed legal guardian of the estate of another living person)
• Trust

Can I buy I-bonds for my kids?

Yes. A parent or guardian can set up a custodial TreasuryDirect account for a child younger than 18.

You can purchase I-bonds for your child within the minor account, which you must link to your own TreasuryDirect account.

Other people can send I-bonds as gifts to your child’s account, but you'll have to supply your child’s Social Security number and TreasuryDirect account number to the giver.

As with an adult, the purchase limit for a child — including gifts received — is $10,000 per calendar year for electronic I-bonds.

How are I-bonds taxed?

I-bond interest is free of state and local income tax, and you can defer federal tax until you file a tax return for the year you cash in the bond or it stops earning interest because it has reached final maturity (after 30 years), whichever comes first.

You can also report the interest every year, which might be a smart choice if you’d rather avoid one large tax bill down the road.

If you use I-bond proceeds to pay for certain higher-education expenses for yourself, your spouse or your dependents, you might avoid federal tax. You must meet several requirements to be eligible.

Among them, the bond owner must have been at least age 24 by the issue date and have income that falls below specified limits. See more detail in Taxes on I-Bonds in Nine Common Situations.

How do I navigate TreasuryDirect?

TreasuryDirect has been widely criticized for its unwieldy format for years.

Although the home page was updated last year, when it comes to using the tools to buy bonds or otherwise interact, it’s back to the old system.

The old system has been described as a time portal back to MySpace.

What can you do?

• Have all your information in hand, including the bank account you intend to link (routing and account numbers) and your state driver’s license or equivalent government ID.
• Link a bank account that you plan to use for a while
• Don’t try to use a password manager
• Don’t be hasty; mis-typing characters could be unfixable. Once you are logged into TreasuryDirect, be careful to follow the site’s directive to not use your browser’s back, forward or refresh buttons. You should use the navigation on the site itself. Make a mistake, and you'll be logged out of TreasuryDirect.

To buy a savings bond in TreasuryDirect:

• Go to your TreasuryDirect account.
• Choose BuyDirect.
• Choose whether you want EE bonds or I-bonds, then click Submit.
• Fill out the rest of the information.

I opened a TreasuryDirect account years ago and have lost my account number. What do I do?

Go to this TreasuryDirect page and fill in your personal information. It must match exactly what TreasuryDirect has on file — for example, if you have moved, you might have to list a previous address.

If the information matches, you’ll answer three security questions. If you respond successfully, you’ll receive an e-mail with your account number.

I’m having trouble buying or managing bonds with the TreasuryDirect website. How can I get help?

You can call TreasuryDirect at 844-284-2676. If the number of callers in the queue becomes too great, an automated message might notify you that TreasuryDirect is no longer accepting calls for the day.

You can reach TreasuryDirect by email by filling out a form on its "contact us" page.

Related Content

• Are I Bonds Taxable? 10 Common Situations
• I-Bond Rate Is 3.98%
• What Happens When a Treasury Bill Matures?

Inflation readings reached four-decade highs of 7.5%, the Bureau of Labor Statistics reported on Feb. 10, and the potential of further erosion of real purchasing power has everyday consumers and investors worried. Over 70% of participants in a recent USA Today/Suffolk University study indicated that inflation is their main economic concern, versus just 24% who cited jobs. Many investors are asking themselves how they might insulate their portfolios.

Gold, commodities, Treasury inflation-protected securities (TIPS) or maybe bitcoin come to mind when thinking of inflation hedges. While all tend to work to some extent, each has its own quirks, and none cleanly moves in lockstep with inflation.

Enter I bonds

Series I savings bonds, or I bonds, are issued and backed by the full faith and credit of the U.S. government and pay an interest rate directly tied to inflation. In short, as prices rise, so does the interest earned. Series I bonds are different from other bonds, so it’s important to understand how they work when deciding whether they are a good fit for your personal savings or portfolios. It’s also worth noting that I bonds are subject to interest rate and market risks.

Distinctive rate structure

One of the things that sets I bonds apart from other investments is their rate structure. There are two components that help determine the Series I bond rates: the fixed rate and the inflation rate. The fixed rate is set at issuance and persists for the life of the bond. The second component resets semi-annually based on the non-seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) for all items, including food and energy. The inflation rate and the fixed rate, adjusted for inflation, are combined to get the overall interest rate.

The bonds accrue interest monthly until they reach their 30-year maturity or you cash them, whichever comes first. For the current period running from November 2021 to April 2022, the fixed rate is 0.00% and semiannual inflation rate is 3.56%, amounting to a composite rate of 7.12%. Rates will reset again in May, and with the way inflation has been going investors can expect yields on I bonds to likely stay elevated.

They’re also tax efficient. You can defer tax reporting on interest until the bonds are redeemed, expire or some other taxable disposition. Interest is subject to federal income tax, but not state or local taxes. Check with a tax professional to see what makes sense for your situation.

Any gotchas?

Kind of. An investor must hold an I bond for at least 12 months before redeeming it. After the first year an investor can redeem their bond, but redemption before five years have elapsed will result in a penalty worth the interest of the previous three months. For example, if you redeem a bond after 18 months, you will receive the principal plus the first 15 months of interest.

Purchases are limited to $10,000 per person per year and only available through TreasuryDirect.gov. You can buy up to $5,000 additional bonds using your federal income tax return for a total annual purchase amount of $15,000.

Deployment within a financial plan

Investors with larger portfolios will quickly run into the annual purchase limit if they try to use I bonds to hedge inflation entirely. Such investors may want to consider using I bonds with other inflation-hedging strategies, such as TIPS or a broad-based commodities basket. An investor may also consider swapping out low-yield cash savings for I bonds, particularly those past their 12-month lock up period, as part of their emergency fund.

Amid volatile markets and escalating inflation, I bonds can help investors achieve a higher yield with the safety of a bond backed by the U.S. government. I bonds can hedge your portfolio against inflation, but it’s important to remember the money invested is tied up for the first year. When in doubt, check in with a financial adviser or professional who can help guide you.

Series I bonds can be a good fit for some investors, and are especially worth exploring in an inflationary environment.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The federal tax consequences for Series EE and I U.S. savings bonds are anything but straightforward. Although the interest on these bonds is fully exempt from state and local taxes, the federal tax treatment varies depending on who owns the bonds and, in some cases, how they are used.

Here are four common scenarios that retirees may encounter for how and when the bond interest is taxed.

Buyers of EE or I savings bonds have a choice when they acquire the bonds. They can pay tax each year on interest earned or defer the tax bill to the very end. Most people choose the latter. They report the interest as taxable income on their Form 1040 for the year the bonds mature or when they're cashed in, whichever happens first. Deferring tax on the full amount of accrued interest for up to 30 years may sound like a terrific idea until you get the tax bill for three decades worth of interest. Worse, taking the tax hit all at once could push you into a higher tax bracket, making the bill even more expensive than it needed to be.

Many grandparents buy savings bonds for their grandkids. Provided the bonds are titled in the grandchild's name, the interest is generally reportable by the grandchild, who can choose to defer paying tax on the interest or report it annually, the same as any other bondholder. For bonds issued in the name of co-owners, such as a parent and child or grandparent and grandchild, the interest generally is taxable to the co-owner who paid for the bond. This is true even if the other owner redeems the bond and keeps the proceeds.

Giving away bonds you already own to a child, grandchild or other person doesn't get you off the hook with Uncle Sam for owing money on previously untaxed interest. If the bonds are reissued in the gift recipient's name, you are still taxed on all that interest for the year the gift is made. The same applies if you donate a savings bond to charity. If, on the other hand, you reported the interest as taxable each year, there's no big federal tax hit coming when you make the gift.

What if you inherit EE or I savings bonds that haven't yet reached maturity? Who is taxed on the accrued interest that went untaxed because the original owner deferred the interest? It depends. The executor of the estate can choose to include on the decedent's final income tax return all pre-death interest earned on the bonds. If so, the beneficiary reports only post-death interest on Form 1040 when the bonds mature or are redeemed, whichever comes first. If the executor doesn't include the interest income on the original owner's final return, the beneficiary will owe taxes on all bond interest once the bond matures or is redeemed.

One way you might avoid owing taxes on the bond interest is to cash your EE or I bonds before maturity and use the proceeds to pay for college. If you meet this set of rules, the interest won't be taxable:

• You must have acquired the bonds after 1989 when you were at least age 24.
• The bonds must be in your name only.
• The bonds must be redeemed to pay for tuition and fees at an undergraduate, graduate or vocational school for you, your spouse or your dependent, such as a child claimed on your tax return. The bonds can also be redeemed to pay for a computer that you, a spouse or a dependent uses for school. Costs for room and board aren't eligible, and grandparents can't use this tax break to help someone, such as a grandchild, who isn't claimed as their dependent.
• The educational expenses must be paid using the bond proceeds the year that they are redeemed.
• High earners don't qualify. The interest exclusion begins to phase out for joint filers with modified adjusted gross incomes of more than $124,800 (more than $83,200 for other filers) and ends when modified AGI hits $154,800 ($98,200 for other filers).

Note that if the proceeds from all EE and I bonds cashed in during the year exceed the qualified education expenses paid that year, the amount of interest you can exclude is reduced proportionally.

With interest rates on most savings accounts and certificates of deposit paying well under 1%, the 3.54% composite rate on newly issued Series I savings bonds is hard to ignore. The composite rate consists of a fixed rate, which is currently 0% on new bonds, and an inflation rate, which is based on the government’s consumer price index and adjusts every six months from the bond’s issue date. Rates on new bonds are set each May and November. The composite rate was 1.68% until May.

Kiplinger expects a 4.4% rise in overall prices this year as a reopening economy, government stimulus and shortages contribute to price increases. If inflation lessens down the road, a weak inflation rate combined with a 0% fixed rate could mean poor returns on your I bond. But “even if the total rate drops to zero in six months—which is highly unlikely—you will likely earn a higher return with 3.54% for six months and zero for the next six months than you would with other options,” says Chuck Bender, a certified financial planner in Baltimore. (If the inflation rate becomes negative because of deflation, an I bond’s composite rate does not go below 0%.)

You can’t redeem an I bond within the first year. If you cash it in before five years have passed, the penalty is three months’ worth of interest—considerably less severe than the early-withdrawal penalties on most five-year CDs. Even if you pay the penalty, “you will still likely be far ahead of where you’d be if you just earned the standard interest rate on your bank savings account,” says Matt Hylland, a financial planner in Cedar Rapids, Iowa. A savings account or money market deposit account is the best choice for money you may need to access immediately, such as an emergency fund, but I bonds can fit well into a longer-term savings stash.

Each year, you can purchase up to $10,000 in electronic I bonds at treasurydirect.gov, plus up to $5,000 in paper bonds with your federal tax refund. You don’t pay state or local income tax on the interest, and you can defer federal income tax until you redeem the bond or it reaches maturity after 30 years.

On Wednesday of election week, the Federal Reserve Board issued a statement, and the chairman gave a press conference. Let me summarize the Fed’s message in four words: More of the same.

That’s good news for income markets in 2021. It portends more positive returns, comparable to the 7% in 2020 on investment-grade corporate bonds or the 3.5% on Ginnie Mae mortgage pools. Any sense that inflation, interest rates and economic growth will escalate enough to erode bond values is mistaken, even if a viable COVID vaccine revs consumer and business confidence. Look at it this way, says PGIM Fixed Income economist Katharine Neiss, “A vaccine is less inflationary than a huge fiscal stimulus.”

A mixed and centrist election outcome, assuming it comes to pass after runoff elections for Georgia’s Senate seats, stands to trim the maximum size and breadth of any such 2021 stimulus package. That moderation will restrain long-term interest rates. And the Fed’s explicit policy of lower-for-even-longer short-term yields and its promise to fight anything threatening to spark even a near-recession will keep cash returns near zero. That hardens the floor beneath the value of stocks and bonds.

No shame in looking. The balance of risk and reward that favors higher yields over too much caution has not changed. The question is one of degree. At least investors should start to feel more comfortable about reaching for yield beyond the usual suspects. Says Eaton Vance fund manager Andrew Goodale, “The shaming of people for searching for yield has quieted down.”

As always, there will be some bond market blowups, but beware making sweeping judgments. Do not go wobbly on municipal bonds should Illinois lose its investment-grade credit rating, and do not dis Dividend Aristocrats if ExxonMobil slashes its payout. It is a mistake to sell good investments on news events. If you waited out the worst few weeks this past February and March, you benefited big-time. The markets vindicated the view that high-yield bonds, taxable municipals and preferred stocks were massively oversold, and these holdings maintained their payouts. Even if Illinois were to sink to the same bond rating as Brazil’s, it will not default on its interest payments.

Since 2021 stands to be quieter than 2020, with no election, banks and real estate steadying, and progress on the pandemic, there’s no urgency I can see to withdraw your 2020 profits from the market. A year ago I highlighted the closed-end Nuveen Preferred and Income Term Fund (symbol JPI), lauding its prospects even after a 31% return in 2019. The fund’s share price fell 40% (like so much else) in late February and March, but it regained most of the losses and still distributes 7% annually. After a similar drop in the Flaherty & Crumrine Preferred Income Fund (PFD), a relentless rally delivered a 16% year-to-date increase in share price. It distributes 6% after raising dividends 10% in August. PFD, a closed-end fund, trades at a 20% premium to net asset value, but once that shrinks, it is a buy. (Yields and returns are as of early November.)

I am also a fan of Invesco Taxable Municipal Bond ETF (BAB). Taxable munis yield as much as or more than triple-B corporates—but with triple-A and double-A ratings, arguably sounder revenues, and a huge market of institutions and foreigners who do not need or qualify for a tax exemption. The ETF yields about 3% and has a total return of 6.7% for 2020, on top of 11% in 2019.

Lastly, high-yield bonds retain a handsome yield advantage over Treasuries. Good fund managers, including those at Vanguard High Yield Corporate (VWEHX), are careful to avoid sick sectors and borrowers with cash-flow crises. Goodale calls this “informed risk tolerance.” I call it smart.

Question: Can I use my series EE or I bonds to pay for a grandchild’s college—and save on taxes?

Answer: You can redeem savings bonds to help cover the cost of college, and in some cases the interest the bonds earn won’t be subject to federal income tax. But as a grandparent, you’ll likely have to jump through some hoops and meet income limits to avoid the tax.

Under the Education Savings Bond Program, you can exclude bond interest from your income if you use bond proceeds to pay qualified education expenses for yourself, your spouse or a dependent. If your grandchild is not a dependent that you list on your tax return, you won’t meet the standard.

Several other restrictions apply, too. EE bonds must be issued after 1989 (all I bonds are eligible). The bonds must be issued either in your name or in both your name and your spouse’s name as co-owners (a dependent may be listed as a beneficiary but not as an owner). Plus, you must have been at least 24 years old at the bonds’ issue date. The tax exclusion begins to phase out for those with modified adjusted gross income exceeding $81,100 ($121,600 for joint returns) for the 2019 tax year, and it disappears when MAGI reaches $96,100 or more ($151,600 for joint returns). If you’re married, you have to file a joint return to exclude bond interest from income. And education expenses have to be incurred in the same tax year that the bond is redeemed.

Grandparents who are not eligible for the tax break because they don't claim their grandchildren as dependents but who are determined to get it can use a workaround that complies with IRS rules, says Mark Kantrowitz, publisher and vice president of research of Savingforcollege.com. Qualified education expenses under the Education Savings Bond Program include tuition and fees (but not room and board or books) at a post-secondary institution, as well as contributions to a Coverdell education savings account or a 529 college-savings or prepaid-tuition plan. A grandparent could list himself or herself as the beneficiary on a 529 plan—the grandparent doesn’t have to be the plan’s owner, so you could use a 529 that the child’s parents own—then redeem the bonds and contribute the proceeds to the 529 within 60 days of the redemption. After that, you could change the beneficiary on the 529 plan to the grandchild’s name.

Not only could the grandparent take advantage of the tax exclusion, but the grandchild would be able to use the money for a broad range of education expenses. Withdrawals from a 529 are tax-free for college tuition and fees, as well as room and board, books, and computers. (Plus, in most states, up to $10,000 yearly is tax-free to pay school tuition in grades kindergarten through 12.)

Question: My grandfather and father passed away when I was 8 years old. I heard they had savings bonds for me. I'm 37 now and have no one left to ask about it. How do I find out if there really are any savings bonds for me, and how do I go about finding them?

Answer: The best way to search for old savings bonds is to fill out Form 1048, Claim for Lost, Stolen or Destroyed U.S. Savings Bonds, with as much information as possible. (The government's Treasury Hunt tool used to be a good resource for tracking down information about Series E bonds issued since 1974. But the Treasury Department recently discontinued that tool, and it didn’t include information about older bonds or other types of savings bonds.)

You likely won't be able to provide all of the information requested on the form, such as the serial numbers of the bonds, but answer as many of the questions as you can, says Brad Benson, public affairs specialist with the Treasury Department’s Bureau of the Fiscal Service, which runs the savings bond program. "The most relevant information will be the name the bond was purchased under, the Social Security number and the address. And the approximate dates of the bonds will help, too," he says. "Any information you can provide will help, even though it might not fit neatly on the form."

Benson recommends including your own Social Security number as well as the names and Social Security numbers of your father and grandfather, or anyone whose name the bond may have been purchased under (such as your mother or guardian). Some people purchase bonds under their own name, address and Social Security number and have them payable on death to a child or grandchild. Others know the Social Security number and address of the child or grandchild, so they purchase the bonds under the child's name and information. You won't know the specific dates of the bonds, so a suspected range of dates is probably the best you can do. For the address, give any addresses that may have been used when the bonds were purchased, says Benson.

For more information about the procedures, see TreasuryDirect's Replacing or Reissuing a Paper EE Bond page or Reissuing or Replacing Series HH or Series H Savings Bonds. For more information about when the different types of savings bonds were issued and whether or not they may still be earning interest, see Treasury Securities That Have Stopped Earning Interest and the History of the Savings Bonds Program table.

Question: My parents and grandparents gave me some savings bonds when I was born. How can I figure out if they’re still earning interest? If they aren’t earning interest anymore, how do I cash them in?

Answer: The maturity date depends on the type of savings bond and when it was issued. Most savings bonds earn interest for 30 years, although HH bonds earn interest for 20 years, and old Series E bonds (from November 1965 and earlier) earn interest for 40 years. If you have E bonds or H bonds, they aren’t earning interest anymore; neither are EE bonds issued from January 1980 through April 1987 or HH bonds issued from January 1980 through April 1997. See the full list by date at TreasuryDirect.

If you have Series E bonds issued in 1974 or later or Series EE bonds, you can use the Treasury Hunt tool to quickly see if any bonds registered with your Social Security number have stopped earning interest.

If you discover that your savings bonds have matured, you should cash them in and invest the money elsewhere. If you have paper bonds, contact your bank to see if it cashes savings bonds (not all banks do, and some will cash in savings bonds only for customers who have had accounts for at least six months). For more information, see How to Cash in Savings Bonds.

If you have Series E, EE or I bonds, another option is to use the Smart Exchange at TreasuryDirect to convert your paper savings bonds to electronic bonds, which will make them much easier to monitor and redeem (you can link your TreasuryDirect account to a bank account). For more information, see Converting Paper Savings Bonds to Electronic Form.

If you can’t locate a paper bond, you can fill out Form 1048, Claim for Lost, Stolen or Destroyed U.S. Savings Bonds, and the Treasury will search its records. Provide your name and Social Security number (and the purchaser’s Social Security number, if the bond was received as a gift), the approximate issue date (or at least a range of years), the serial number, if available, and any other information you may have, such as the bond series or denomination. If you don’t have all of this information, fill out as much as you can. Get the form certified by a financial institution, and send it to the address listed on the form for the type of bond you’re trying to track down. For more information, see Tracking Down Missing Savings Bonds.

I have some old savings bonds my parents gave me shortly after I was born. How can I find out if they’ve stopped earning interest?

Most savings bonds earn interest for 20 or 30 years. After that, they should be cashed in so you can invest the money elsewhere. If you have old E bonds or H bonds, they’ve all stopped earning interest—the last E bonds were issued in 1980 and the last H bonds were issued in 1979. EE bonds earn interest for 30 years, so any of those bonds purchased from the time they were introduced in January 1980 through July 1986 have stopped earning interest. HH bonds earn interest for 20 years, so any of those bonds purchased from January 1980 through July 1996 have stopped earning interest. I bonds, which were introduced in 1998, earn interest for 30 years.

For a list of savings bonds that have stopped earning interest, see the list at TreasuryDirect.gov. You can also use the Treasury Department’s Treasury Hunt tool to check on the status of Series E savings bonds issued in 1974 and later, and for all Series EE bonds. If you provide your Social Security number, the tool will let you know whether there are savings bonds issued in your name that are no longer earning interest. You’ll see instructions for cashing in the bond if it’s in your possession, or steps to take to file a claim if you have lost the bond.

For more information about savings bonds, see Bond Basics: U.S. Savings Bonds. For more information about cashing in paper savings bonds or converting them to electronic form, see How to Cash In Savings Bonds.

Thanks to rising inflation, Series I savings bonds have enjoyed a boom in popularity. I bonds issued from May 2022 through October 2022 earned a composite rate of 9.62% for the first six months, which prompted investors to stash more than $1 billion in I bonds in October 2022 alone.

The current I bond rate, which is valid from November 1 to April 30, 2025, is 3.11% — a significant drop but still a reasonably attractive return for a no-risk investment.

Although savings bonds can earn interest for up to 30 years, you may want to redeem them earlier, especially as the rates are dropping from their 2022 highs.

You can cash in I bonds as well as EE bonds (which pay a fixed 2.6% rate for bonds issued from November 1, 2024, through April 30, 2025), after you’ve owned them for a year.

But if you redeem bonds within five years, you’ll lose the last three months of interest.

Here are the steps you need to take if you’re ready to cash in your savings bonds.

Determine the value of your bonds. Before you cash in your bonds, find out how much they are worth. Go to TreasuryDirect and log in to your account.

There you’ll find a list of securities you own and their current value.

If you own paper savings bonds, which were mostly phased out in 2011, go to Calculate the Value of Your Paper Savings Bond(s) at TreasuryDirect.

Redeeming electronic bonds. Log in to your account at the TreasuryDirect website and click on the link to cash out your securities.

The minimum redemption amount is $25. If you cash out part of your bond, you’ll only receive interest on the redeemed amount.

Redeeming paper bonds. Unlike electronic bonds, paper bonds must be redeemed for their full value. One option is to take them to a bank that will redeem savings bonds (not all do).

Fill out FS Form 1522, and bring it with you to the bank. You’ll need a certified signature, such as one from a notary public if you’re cashing out more than $1,000.

If you can’t find a bank that will cash your savings bonds, fill out FS Form 1522 and mail it to the Treasury address listed on the form.

Paper bonds are only cashed out through direct deposit, so you have to include your bank’s routing and account number.

If you have older paper bonds that are no longer drawing interest, or if you want to find out whether a deceased loved one has matured paper bonds, go to the Treasury Hunt website.

You’ll need to enter your Social Security number (or the deceased owner’s SSN) to locate the bonds.

If your bonds are listed on the site, you can contact TreasuryDirect.gov to find out how to claim and redeem them.

If you’re not named as the owner of a bond, you must mail in documentation to prove you have a legal right to redeem it.

Interest on savings bonds is free of state and local income taxes, and you can defer federal tax until you cash in the bond.

Once you redeem your savings bond, though, you’ll owe taxes on the interest you’ve accrued.

If you redeemed your bonds online, the Treasury will mail you a Form 1099-INT, which you’ll use to report taxable interest on your tax return.

If you cashed out your bonds through a bank, the bank should send you a Form 1099-INT.

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• What Are I-Bonds?
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My daughter will be going to college in the fall, and I’m starting to get the money together for the first tuition bill. Can I cash in our savings bonds tax-free to pay for college?

It depends on who owns the savings bonds and when they were purchased. To qualify for the tax break, the bond owner must have been at least 24 years old when the bond was issued and must use the money to pay qualified education expenses for himself, his spouse or dependents. The child can be a beneficiary of the bonds but cannot be the owner or co-owner. You can use the bonds tax-free for tuition and fees, but not for room and board.

I bonds and EE bonds issued after 1989 are eligible for the tax break. You must also meet certain income limits. To exclude all of the interest from taxes, your modified adjusted gross income in 2016 must be less than $116,300 if married filing jointly or $77,550 for single filers. You can exclude part of the interest if your income is less than $146,300 if married filing jointly or $92,550 for single filers.

For more information and help calculating how much of the interest is tax-free, see IRS Publication 970 Tax Benefits for Education. Also see the Treasury Department’s Using Savings Bonds for Education.

With interest rates scraping bottom, it’s tough to make a case for buying savings bonds now. New I-bonds are yielding zilch, combining a fixed rate of 0%, which lasts the life of the bond, with an inflation rate, reset semiannually, that has dipped to –0.8% (the Treasury doesn’t allow the combined rate to drop below zero). Series EE bonds pay a fixed 0.3%. You can’t redeem either type of bond within a year of the purchase date, and if you pull out the money before five years have passed, you’ll be penalized the last three months’ interest.

If, however, you’re determined to put money into a savings bond—say, because you want to give one as a gift—go with an EE bond, advises Jackie Brahney, marketing director of SavingsBonds.com. The Treasury will adjust the bond’s value to double the original issue price after 20 years if interest payments have not raised the bond’s value to that level. That’s a minimum return of 3.5%.

Because the fixed-rate component on new I-bonds is so anemic (the Treasury hasn’t issued one with a fixed rate of 1% or more since 2007), the bonds offer little opportunity for growth in your money’s buying power, says Greg McBride, chief financial analyst for Bankrate.com. If you own an I-bond, you don’t have to worry about a loss of principal because the combined rate never falls below 0%. But the combined rate can fall below the fixed rate. A bond that was purchased in May 2001, for example, has a fixed rate of 3%; accounting for the –0.8% inflation rate, the current combined rate is only 1.38%.

For now, most savers who want a safe place to park cash are better off using a high-yielding savings account or certificate of deposit.

I am pretty sure my parents purchased a $500 savings bond for my daughter when she was born. Unfortunately, they have passed on, and I don’t know where it is. How can I check to see if there is one out there?

See Our Slide Show: 8 Places to Find Free Money

The Bureau of the Public Debt can help you track down lost savings bonds. Start by using the Treasury Hunt tool to search for any Series E bonds issued in 1974 or later that have reached maturity and are no longer earning interest, or savings bonds that were returned to the Treasury as undeliverable, or other registered Treasury notes and bonds.

The Treasury Hunt tool is not comprehensive, however. If you don’t find the savings bond in that database, go to TreasuryDirect.gov and download Form 1048, Claim for Lost, Stolen or Destroyed U.S. Savings Bonds. Fill out as much information as you can, including the bond owner’s name, address and Social Security number; the approximate issue date; the serial number, if available; and any other details about the bond. (If the bond was received as a gift, the form asks for both the bond owner’s and the purchaser’s Social Security number.) Then go to a bank and have the form certified, and send it to the address listed on the form based on the type of bond. (You may be able to narrow down what type of bond it is based on the time frame. For example, H bonds were last issued in December 1979, and HH bonds were issued from 1980 through August 2004. See the History of the Savings Bonds Program table for a list of dates when each type of bond was available.)

If you had the serial number, the Bureau of the Public Debt would be able to track down and reissue your bonds in as few as three to four weeks. But otherwise, the process could take months. For more information about tracking down other kinds of lost cash, see 8 Places to Find Free Money.

Billions of dollars in savings bonds have stopped earning interest but haven’t been cashed. For more information about the number of years each type of savings bond earns interest, see Treasury Securities That Have Stopped Earning Interest.