Dan is a veteran writer and editor specializing in financial news, market education, and public relations. Earlier in his career, he spent nearly a decade covering corporate news and markets for Dow Jones Newswires, with his articles frequently appearing in The Wall Street Journal and Barronâs.
Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago.
Before joining Britannica, Doug spent nearly six years managing content marketing projects for a dozen clients, including The Ticker Tape, TD Ameritrade’s market news and financial education site for retail investors. He has been a CAIA charter holder since 2006, and also held a Series 3 license during his years as a derivatives specialist.
Doug previously served as Regional Director for the Chicago region of PRMIA, the Professional Risk Managers’ International Association, and he also served as editor of Intelligent Risk, PRMIA’s quarterly member newsletter. He holds a BS from the University of Illinois at Urbana-Champaign and an MBA from Illinois Institute of Technology, Stuart School of Business.
For I bonds issued from November 1, 2026, through April 30, 2027, the composite interest rate is 5.51%. That rate combines a 1.40% fixed rate, which remains with the bond for its life, with an annualized inflation rate of 4.11%, which resets every six months based on changes in consumer prices.
When inflation rears its ugly head, itâs hard to find anythingâstocks, bonds, even âjunkâ bondsâwith a yield that keeps pace with rising prices. One investment that does is Series I savings bonds, also known as I bonds, issued by the U.S. Treasury. The yield on I bonds is adjusted every six months to the rate of inflation, and in mid-2022 that yield spiked to its highest level in decades, at 9.62%.
That eye-popping yield led millions of investors rushing to TreasuryDirect.gov to set up an account and start watching the interest payments roll in. As inflation began to ebb, Treasury dialed back the yield. But I bond rates have since moved higher again. For bonds issued from November 1, 2026, through April 30, 2027, the composite rate is 5.51%, including a 1.40% fixed rate.
Thereâs a lot to love about I bonds, especially during periods of high inflation. But theyâre not the ultimate investment solution, and theyâre not for everyone. As with any investment, they even have a few risks.
Key Points
Pros: I bonds have a high interest rate during inflationary periods, are low-risk, and help protect against inflation.
Cons: Rates are variable, a lockup period and early withdrawal penalty apply, and thereâs a limit to how much you can invest.
Availability: I bonds can be purchased only through taxable accounts, not in IRAs or 401(k)s.
How I bonds work
I bonds are inflation-protected instruments offered by the Treasury that are designed to protect investors from rising prices. Their interest rate has two parts: a fixed rate that stays with the bond for its life and a variable inflation rate that changes every six months.
The rate is calculated twice a year and based on changes in the U.S. Consumer Price Index for All Urban Consumers (CPI-U) for all items, including food and energy.
When inflation surges, as it did in 2022, the I bond rate goes up, making it a more powerful investment tool.
For I bonds issued from November 2026 through April 2027, the 5.51% composite rate combines a 1.40% fixed rate with an annualized inflation rate of 4.11%.
Why I bond rates rise and fall
The main reason many investors rushed into I bonds in 2022 was soaring U.S. inflation, which briefly pushed their yields above 9%. I bond rates reset every six months based on changes in the Consumer Price Index. As inflation eased in the mid-2020s, new I bond rates fell as well.
By May 2026, the I bond rate had fallen to 4.26%, roughly in line with comparable Treasury yields. But the rate moved higher again in November. For I bonds issued from November 2026 through April 2027, the rate is 5.51%.
Ideally, economic inflation shouldnât be too hot or too cold.
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The takeaway for investors? The initial yield is only good for the first six months you own the bond. After that, the investment acts like any other variable vehicle, meaning rates can go up and down and you have no control over it.
Variable interest rates are another risk to consider when buying I bonds, since you canât simply sell when the rate falls. Youâre locked in for the first year, unable to sell at all. Even after that, thereâs a penalty of three monthsâ interest if you sell before five years. So if you think youâll need any of the money before that, I bonds may not be for you.
Should you buy I bonds?
I bonds come with both advantages and drawbacks, and understanding them can help you decide if they fit your portfolio.
I bond pros
Competitive interest rate during inflationary periods. When inflation is high, I bonds can pay more than many other low-risk investments.
Inflation hedge. The bondâs interest will grow at around the same rate as inflation, meaning your savings wonât lose their buying power.
Potential tax break for kids. If you buy I bonds using your childâs Social Security number, the interest is taxed at the childâs rateâoften very low or even zero if they have little income.
I bond cons
Variable rate. The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, down to a fixed-rate component, which stood at 1.4% as of November 2026.
One-year lockup. You canât get your money back at all the first year, so you shouldnât invest any funds youâll absolutely need anytime soon.
Early withdrawal penalty. If you withdraw after one year but before five years, you sacrifice the last three months of interest.
Not allowed in tax-deferred accounts. You canât buy I bonds inside an Individual Retirement Account (IRA), 401(k) plan, or 529 planâthey must be held in taxable accounts.
I bond investing strategiesâfor better or worse
For many savers, the annual $10,000 maximum investment cap isnât a problemâthatâs a lot of money to have available, after all your expenses are paid and your tax-advantaged retirement savings have been funded for the year. If youâre fortunate enough to have more than $10,000 ready to invest, youâll have to find other investments whose risk-adjusted return may not be as attractive.
Thatâs why for many investors, I bonds are a helpful hedge, but not a panacea for inflation.
Unlike those securities, I bonds arenât bought and sold in the secondary market. Theyâre savings bonds designed for individual investors and are purchased and redeemed through the U.S. Treasury.
How I bond interest grows
A key feature of I bonds is that their interest compounds automatically. Every six months, the interest you earn is added to the principal balance, so youâre earning interest on an ever-growing pile the longer you keep your money invested. The bond earns interest for 30 years or until you cash it, whichever comes first.
The variable rate is another risk. If inflation drops back to roughly 2%, as it did from 2010 to 2020, your I bond yield will fall with it. The initial rate is guaranteed for only six months, and later adjustments can be much lowerâdown to the fixed-rate component. You must hold the bond for at least one year, and if you cash out before five years, you forfeit three months of interest.
Also, donât over-invest in I bonds if it would deplete your savings. Ensure your emergency fund is adequately funded before putting money into any investment with a lockup period. Say you put $5,000 into an I bond and lose your job two months later. If you need that cash, you wonât be able to access those funds for 10 months.
The bottom line
I bonds are a convenient, relatively safe investment that helps protect savings from the effects of inflation. But they arenât the answer to all your inflation problems, and there are risks associated with tying up your money in an investment with cash-out restrictions. Weigh the risks along with the benefits before you buy.
