Series I and EE Savings Bonds Explained

Key Takeaways

• Savings bonds are non-marketable. You buy them from the Treasury and redeem them with the Treasury. There is no secondary market, no price quote, and nothing to sell.
• Series I bonds combine a fixed rate that never changes with an inflation rate reset every six months. TreasuryDirect publishes the composite formula: fixed rate plus twice the semiannual inflation rate plus the product of the two.
• The I bond combined rate can fall below the fixed rate during deflation, but TreasuryDirect states it is never allowed below zero. The principal does not fall.
• Series EE bonds earn a fixed rate set at purchase, and TreasuryDirect guarantees the bond will double in value in 20 years, adding money at 20 years if necessary to make that happen.
• That doubling guarantee is worth about 3.53 percent compounded annually, and it arrives as a single adjustment at the 20 year mark rather than gradually. Redeeming at 19 years forfeits it entirely.
• Both series earn interest for 30 years, cannot be cashed for 12 months, and forfeit the last three months of interest if cashed within five years.
• Purchases are capped at 10,000 dollars in electronic bonds per calendar year per Social Security Number, for each series.
• Interest is subject to federal income tax and not to state or local income tax, and reporting can be deferred until redemption. A higher education exclusion may apply.

What Makes a Savings Bond Different?

Every other security on this site has a market price. A Treasury note, a corporate bond, a municipal bond: each one can be bought from and sold to other investors, and its value between issue and maturity is whatever the market says it is. Savings bonds are not like that.

A savings bond is a direct, non-transferable obligation between you and the U.S. Treasury. You buy it from the Treasury, its value accrues according to published rules, and you redeem it with the Treasury. It cannot be sold, transferred to another investor, pledged as collateral, or quoted on a screen. It has no market price because there is no market.

That single structural fact drives every practical difference:

• No interest rate risk in the usual sense. A savings bond’s redemption value never falls because rates rose. The concept does not apply, because there is no price to reprice. Compare that against marketable Treasury securities, where the guarantee covers the payments and the market price moves freely.
• Liquidity is granted by rule rather than by a buyer. You cannot cash a bond in the first 12 months at any price, because there is no counterparty willing to pay one. After that you can always redeem, at a value the Treasury calculates.
• Purchase amounts are capped. A market has no limit on how much you can buy. A direct programme does, and TreasuryDirect sets it at 10,000 dollars per calendar year per Social Security Number in electronic bonds, for each series.
• Interest compounds inside the bond. There are no coupon payments to reinvest, so reinvestment risk does not arise the way it does with a coupon-paying bond.

The trade is straightforward: you give up tradability, size and flexibility, and in exchange you get an instrument whose value cannot fall and whose rules are published rather than negotiated. Whether that is a good trade depends entirely on what the money is for.

How Do Series I Bonds Work?

An I bond’s rate has two components, and understanding how they combine is the whole of I bond analysis.

The fixed rate is set when you buy and never changes for the life of that bond. TreasuryDirect announces a new fixed rate every 1 May and every 1 November, and that rate then applies for the life of every I bond issued during the following six months. Two I bonds bought a year apart can carry permanently different fixed rates.

The inflation rate changes every six months. TreasuryDirect sets it every 1 May and 1 November, based on changes in the non-seasonally adjusted Consumer Price Index for All Urban Consumers for all items, including food and energy.

The two are combined into what TreasuryDirect calls the combined rate, also called the composite rate or the earnings rate, using a published formula:

Composite rate = fixed rate + (2 × semiannual inflation rate) + (fixed rate × semiannual inflation rate)

The multiplication by two converts the semiannual inflation figure to an annual basis, and the final term is a small cross-product that prevents the two components being simply added. Work it through with a hypothetical fixed rate of 0.50 percent and a hypothetical semiannual inflation rate of 1.20 percent:

• Fixed rate: 0.0050
• Two times the semiannual inflation rate: 2 × 0.0120 = 0.0240
• Cross-product: 0.0050 × 0.0120 = 0.00006
• Total: 0.0050 + 0.0240 + 0.00006 = 0.02906, which is a composite rate of 2.91 percent

Now run the same fixed rate against a hypothetical semiannual deflation of 1.50 percent:

• 0.0050 + (2 × −0.0150) + (0.0050 × −0.0150) = 0.0050 − 0.0300 − 0.000075 = −0.025075
• That arithmetic gives a negative composite rate, and TreasuryDirect states that when the inflation rate is negative enough to pull the combined rate below zero, they do not let that happen. The rate stops at zero.

Two consequences follow, and they are the practical heart of the I bond. First, the value of an I bond never goes down. A period of deflation produces a zero earning rate rather than a loss. Second, the fixed rate is the part that actually determines long-run real return, because the inflation component only keeps pace with prices. A bond bought when the fixed rate is higher is a permanently better bond, and no amount of subsequent inflation changes that ranking.

One timing detail catches people out. TreasuryDirect announces rates in May and November, but the date your own bond changes rate is every six months from its own issue date, not from the announcement date. A bond issued in July gets its new rate in January and July, not in May and November.

As published for I bonds issued from 1 May 2026 to 31 October 2026, the composite rate is 4.26 percent, which includes a fixed rate of 0.90 percent. Rates change every six months, so check TreasuryDirect for the current figure rather than relying on any number quoted here.

How Do Series EE Bonds Work, and What Is the 20-Year Guarantee?

EE bonds are simpler on the surface and stranger underneath. TreasuryDirect states that since May 2005, new EE bonds earn a fixed rate of interest that is set when you buy the bond. That rate does not change, and it is typically modest.

The interesting part is the guarantee. TreasuryDirect states that Treasury guarantees the bond will double in value in 20 years, even if it has to add money at 20 years to make that happen.

Read that carefully, because the mechanism is unusual. The bond accrues at its stated rate. If, at the 20 year mark, that accrual has not brought the bond to twice its purchase price, the Treasury makes a one-time adjustment to close the gap. The guarantee is a floor delivered as a lump sum on a specific anniversary, not a rate paid along the way.

Turn the guarantee into a rate and its real size becomes visible. Doubling over 20 years is an annual compound return of 2 raised to the power of 1/20, minus one, which is approximately 3.53 percent per year. That is what an EE bond held for exactly 20 years earns, regardless of how low the stated rate is.

Now look at what happens if you do not hold it that long. The illustration below is hypothetical, computed from the stated assumptions, and uses a 2.40 percent stated rate compounding annually for arithmetic clarity.

The whole value of the guarantee lands in a single moment. Redeeming at 19 years and 11 months produces roughly 16,000 dollars. Waiting one more month produces 20,000 dollars, a difference of about 25 percent for a month of patience.

This creates the sharpest holding-period cliff in retail fixed income, and it dictates how an EE bond should be used. An EE bond is a 20 year commitment with a defined outcome, or it is a mediocre savings product. There is very little middle ground. Anyone who might need the money at year 12 is buying a bond paying a low stated rate and forfeiting the only feature that made it interesting.

After year 20 the bond continues accruing at its stated rate until it stops earning interest at 30 years. There is no second doubling.

The Rules That Apply to Both Series

The 12 month lockup deserves emphasis because it is absolute. There is no early redemption at a discount, no secondary sale, and no borrowing against the bond. Money that might be needed within a year should not be here at all; it belongs in cash and cash equivalents.

The three month penalty for redemption before five years is milder than it sounds in a high-rate period and harsher than it sounds in a low-rate one, because it is three months of whatever the bond has been earning. It is worth calculating rather than assuming, especially for an I bond whose rate has been swinging.

The purchase limits are the constraint that shapes most real plans. Because the cap resets each calendar year and applies per Social Security Number, building a meaningful savings bond position is a multi-year exercise by design. That is a deliberate feature of a programme aimed at household savers rather than institutions, and it is the main reason savings bonds complement rather than replace marketable securities.

How Are Savings Bonds Taxed?

TreasuryDirect sets out the treatment directly, and it is unusually favourable on timing.

• Federal income tax applies to the interest. State and local income tax does not. That state and local exemption is a real advantage for a saver in a high-tax state, and it applies automatically without the complexity of municipal bonds.
• Federal estate, gift and excise taxes apply, as do state estate or inheritance taxes. The exemption is from income tax, not from transfer taxes.
• You can choose when to report. TreasuryDirect describes two options: defer reporting the interest until you file a federal return for the year in which you receive it, or report the interest each year even though you do not actually get it then. Most people defer.
• An education exclusion may apply. TreasuryDirect notes that using the money for higher education may keep you from paying federal income tax on savings bond interest. Eligibility rules apply and should be checked before relying on it.

The deferral option is the quietly valuable feature, and it is the sharpest contrast with TIPS. A TIPS holder in a taxable account owes federal tax each year on interest earned, and TreasuryDirect notes that any increase or decrease in the principal during the year may affect federal taxes, which can produce a tax bill larger than the cash received. A savings bond holder can leave the entire accrual untaxed for up to 30 years and choose the year of redemption.

That makes the timing of redemption a genuine decision rather than an afterthought. Redeeming a large accrued balance in a single year stacks the whole gain into that year’s income. Spreading redemptions across years, or redeeming in a year with lower income, is a legitimate planning consideration.

None of this is advice for a particular situation. Tax rules change, the education exclusion has conditions, and the right answer depends on facts this page cannot know. The wider treatment of interest income is at bond and fixed income taxation, and a tax professional should confirm anything that matters.

Series I Bonds or TIPS?

Both are Treasury products that adjust for inflation, and they are frequently presented as alternatives. They are better understood as complements, because they differ on almost every dimension except the underlying idea.

The decision rule that falls out of this table is clear enough to state plainly. If the amount is within the annual limit, the horizon is at least a year, and the account is taxable, an I bond is usually the more convenient inflation-linked holding because it cannot fall in value and the tax is deferrable. If the amount is larger than the limit, or the money must be available on a specific date, or the position needs to be tradable, TIPS are the instrument that can actually do the job.

The full mechanics of the marketable alternative are at TIPS, including breakeven inflation and the limits of the deflation floor.

Common Mistakes and Misconceptions

• Buying an EE bond without committing to 20 years. The doubling guarantee is the product. Redeeming at 19 years leaves roughly 16,000 dollars instead of 20,000 on a 10,000 dollar purchase in the illustration above.
• Treating an I bond as an emergency fund. It cannot be cashed for 12 months under any circumstances. That is not a penalty; it is an absolute rule.
• Chasing a high composite rate. The composite rate is temporary and resets every six months. The fixed rate is permanent, and it is the part that determines whether the bond keeps pace with inflation over decades.
• Assuming the announced rate applies to your bond immediately. Rates are announced in May and November, but each bond changes rate every six months from its own issue date.
• Forgetting the three month interest penalty before five years. It is three months of whatever the bond has been earning, which varies with the rate environment and is worth calculating rather than estimating.
• Letting bonds sit past 30 years. They stop earning interest. A bond that stopped accruing years ago is a non-earning asset with a deferred tax bill attached.
• Overlooking the state and local tax exemption. For a saver in a high-tax state, this is a meaningful advantage that comes without the credit analysis municipal bonds require.
• Planning around the purchase limit as though it were negotiable. It is 10,000 dollars per calendar year per Social Security Number in electronic bonds, for each series, which makes savings bonds a multi-year accumulation rather than a place to move a lump sum.

Putting It Together

Savings bonds occupy an odd position in a portfolio. They are Treasury credit, so the payment risk is as low as it gets. They have no market price, so they cannot fall in value. And they come with restrictions (a 12 month lockup, an annual purchase cap, a three month penalty, a 20 year cliff on the EE side) that no marketable security imposes. Whether they belong in a plan depends entirely on whether those restrictions collide with what the money is for.

You should now be able to make the decision without guessing. For an I bond, look at the fixed rate rather than the headline composite rate, because the fixed rate is permanent and the composite rate resets in six months. Confirm you can leave the money untouched for at least a year, and preferably five to avoid the three month penalty. For an EE bond, ask one question first: will this money be left alone for a full 20 years? If the answer is anything other than a confident yes, the doubling guarantee will not be collected and the bond is simply a low-rate savings vehicle. If the answer is yes, it is a defined 3.53 percent annual outcome backed by the Treasury, which is a genuinely useful thing to be able to say about a 20 year holding.

The failure that costs the most is the EE cliff, and it happens for entirely reasonable-sounding reasons. Somebody buys EE bonds for a child’s education, then needs the money at year 14, or forgets what the bonds were for, or redeems a batch without checking issue dates. The value of the guarantee is concentrated in one anniversary, so being close is worth nothing. The I bond version of the same mistake is gentler but still real: buying during a period of high headline inflation because the composite rate looks attractive, then discovering six months later that the composite rate has halved while the fixed rate, which is the part that mattered, was low all along.

Where to go next depends on the alternative you are weighing. If the comparison is against a tradable inflation-linked security, TIPS covers the other side in full, including why its deflation floor works differently. If the comparison is against short-term savings, cash and cash equivalents covers products without a 12 month lockup. And if the tax timing is the deciding factor, bond and fixed income taxation sets out how interest income is reported.

Frequently Asked Questions

References

This guide is based on U.S. Treasury publications, each retrieved and verified on 22 August 2026:

• TreasuryDirect: Series I Savings Bonds: the fixed rate plus inflation rate structure, the rate changing every 6 months based on inflation, the 30 year earning period, the 12 month minimum holding period, the loss of the last 3 months of interest if cashed within 5 years, and the 10,000 dollar per calendar year electronic purchase limit per Social Security Number or Employer Identification Number.
• TreasuryDirect: I Bonds Interest Rates: the composite rate formula, the May 1 and November 1 rate announcements, the non-seasonally adjusted CPI-U basis for the inflation rate, the fact that a bond’s own rate changes every 6 months from its issue date, and the rule that the combined rate is never allowed below zero.
• TreasuryDirect: Series EE Savings Bonds: the fixed rate set at purchase for EE bonds issued since May 2005, the guarantee that the bond will double in value in 20 years with Treasury adding money if necessary, the 30 year earning period, and the same 12 month and 5 year rules and 10,000 dollar annual purchase limit.
• TreasuryDirect: Tax Information for EE and I Savings Bonds: the treatment as subject to federal income tax but not state or local income tax, the application of federal estate, gift and excise taxes and state estate or inheritance taxes, the choice between deferring interest until redemption and reporting it annually, and the higher education exclusion.
• TreasuryDirect: Treasury Inflation Protected Securities (TIPS): the alternative inflation-linked Treasury structure used for comparison: terms of 5, 10 or 30 years, principal indexed up and down, and federal tax due each year on interest earned.

The composite rate worked examples and the EE bond value table are original, hypothetical calculations from the stated assumptions, using annual compounding for arithmetic clarity. The rates used are illustrative rather than current, and published rates change every six months, so check TreasuryDirect for the figures that apply to a bond you are considering. This is educational content, not personalised investment, tax, or legal advice.