· Listen
Series I Savings Bonds (usually called I-Bonds) are US savings bonds whose interest rate has two parts: a fixed rate that stays the same for the life of the bond, and a variable rate that adjusts every six months based on inflation.
Why people use them
- Guaranteed to keep up with inflation: your purchasing power doesn't erode
- Backed by the US government: no default risk
- Federal income tax deferred until you cash out; exempt from state and local tax
- Can be tax-free if used for qualified education expenses
The annoying restrictions
- $10,000 per person per year purchase limit (electronic)
- Must be held at least 1 year: no early withdrawal allowed
- Withdraw before 5 years and you forfeit the last 3 months of interest
- Only sold through TreasuryDirect.gov, which has a clunky interface
When they make sense
Money you won't need for at least 5 years, but want kept safe with inflation protection. Not for emergency funds (locked up), not for long-term retirement (stocks usually do better), but useful as a middle layer.
What this lesson is NOT
I bonds come with real restrictions: a one-year lockup, a penalty for cashing in before five years, and an annual purchase cap. This lesson explains when they fit despite that; it is not a claim they are the best home for every dollar of savings.
Quick check on this lesson
Answer each question and we’ll show you why the right answer is right, and why the others aren’t.
- 1.
How is an I-Bond's interest rate structured?
- 2.
What's the main reason people use I-Bonds?
- 3.
What is the annual purchase limit for electronic I-Bonds per person?
- 4.
What happens if you withdraw an I-Bond before holding it for 5 years (but after the 1-year minimum)?
- 5.
Per the 'When they make sense' section, what time horizon are I-Bonds best suited for?
0 of 5 answered