7 I-Bond Facts That Still Confuse Savers

Series I savings bonds look simple—government-backed, inflation-linked, and easy to buy online—but the rules hide in the fine print. Rates change twice a year, limits reset on a calendar schedule, and taxes work differently from your bank account. Even the day of the month you buy or sell can change what you earn. Add in gift mechanics and education tax perks, and it’s no wonder savers get mixed up. These seven clarifiers will keep your I-bond strategy clean and confusion-free.

1. The Rate Has Two Parts—And Only One Changes for Life

Each I bond earns a composite rate built from a fixed rate (set the day you buy and locked for the life of that bond) plus a variable inflation rate that resets every six months. The composite is calculated by a published formula; you don’t have to do the math, but it explains why your rate isn’t just “CPI.” Today’s cycle (May–Oct 2025) uses a 1.10% fixed rate with a 3.98% composite—older bonds keep their original fixed rate forever. Knowing which piece moves prevents nasty surprises when inflation cools.

2. Your Reset Dates Follow Your Issue Month (Not Just May/Nov Headlines)

Treasury announces new inflation components each May and November, but your bond steps to a six-month rhythm tied to its issue date. Buy in September, and your personal resets will be every March and September going forward. Interest accrues monthly and compounds semiannually on that schedule. Think of it as your bond’s “birthday,” repeated every six months.

3. Month Trick: Buy Late, Cash Early

I bonds start earning interest from the first day of the month you buy, regardless of whether you purchase on the 2nd or the 29th. That’s why many savers buy near month-end and still get credit for the full month. On the flip side, redeeming right after the first of the month can preserve a month of interest you already earned. Small timing choices here add up over the years.

4. The Holding-Period Rules Bite—Until Year Five

You can’t cash an I bond for the first 12 months, period. Cash between years 1–5, and you forfeit the last three months of interest; after five years, there’s no penalty. I bonds can pay for up to 30 years, so you can defer taxes on interest until you redeem or they mature. Memorize the lock-up and penalty—it’s where most “gotchas” live.

5. The $10k Limit Changed—And Paper via Tax Refund Is Gone

For 2025 and beyond, the annual purchase limit is $10,000 per person, per calendar year in electronic I bonds (SSN or EIN). Kids can have their own $10,000 limit through Minor Linked Accounts managed by a parent/guardian. Businesses and trusts with their own EIN also get a separate $10,000 limit. The old extra $5,000 paper I-bond via tax refund is discontinued as of January 1, 2025.

6. Gifts: Buy Now, Deliver Later (But Mind the Recipient’s Limit)

TreasuryDirect lets you buy I bonds as gifts and park them in your “Gift Box.” You must hold a new gift for five business days before delivery, and the gift counts toward the recipient’s $10,000 limit in the year you deliver it—not the year you bought it. Translation: you can pre-purchase gifts in one year and deliver across future years, but you can’t deliver if it would push the recipient over their annual cap.

7. Taxes: Federal Only, with a Possible Education Exclusion

I-bond interest is taxable at the federal level but is exempt from state and local income tax. You can defer federal tax until redemption or maturity. Some households can exclude the interest for qualified higher-education expenses in the year they redeem—if strict IRS rules are met (ownership, age 24+ when issued, income limits, and eligible expenses), using Form 8815. If education is the goal, check the rules before you buy to be sure you (not your child) are the owner.

The Clear-Rules Version of I Bonds

Once you separate your bond’s fixed rate from its inflation reset, anchor to your issue month, and respect the holding-period rules, I-bonds become predictable tools. Layer in the modern limits (no more paper via tax refund), gift timing, and tax treatment, and you’ll stop leaving money on the table. They aren’t perfect for every season—but with the rules straight, you’ll know exactly when they shine and how to use them.