Terry Savage: A fresh look at Series I savings bonds

The interest rate on Series I Savings Bonds has moved up to an annualized 5.51% for the next six months, made up of a 1.40% fixed base rate and a 4.08% inflation adjustment.

The new rate applies to all bonds purchased now, while older bonds keep their fixed base rate and receive the new inflation adjustment.

That 5.51% rate is higher than the 4.26% yield available on purchases made through the end of October.

It is easy to see why some investors are relieved they held onto the Series I Savings Bonds they bought when rates were far higher. In 2022, the combined rate briefly reached an annualized 9.62%, which sparked a rush of online purchases through TreasuryDirect.gov. Even then, many warned that the six-month inflation component, which resets twice a year, would likely come down over time.

As inflation eased, the six-month adjustments fell as well. Some savers redeemed their bonds early and paid a penalty equal to the loss of three months of interest. Those who bought at the peak of the rate cycle were naturally disappointed when later resets were lower.

How the inflation adjustment works

When that 9.62% rate appeared in 2022, the fixed base rate was zero. On a $10,000 bond, that translated into $481 over the first six months.

Later, as inflation cooled, the next six-month period produced a combined rate of 3.24%, which paid about $162 for that stretch. Even then, the annualized return of 6.43% remained appealing.

In the periods that followed, inflation kept easing, and the six-month inflation adjustment dropped to 1.69% for one of the subsequent resets.

The current 4.08% inflation adjustment is the highest since 2022, but any outlook from here depends on inflation staying elevated despite the Federal Reserve’s efforts to push it lower.

Why the fixed base rate matters

The fixed base rate, which is locked in when you buy the bond, is an important part of the appeal. It stood at zero from the pandemic period through that 2022 reset. Later it rose to 0.4%, then 0.9%, and is now 1.40% on bonds currently on sale.

That larger fixed rate acts as a cushion if inflation drops again, because it stays in place for the life of the bond.

Should you buy savings bonds?

The answer depends on your time horizon and your comfort with risk. Buyers should be prepared to keep the bonds for at least one year, and ideally five years, to avoid the early-redemption penalty. These are safe investments that protect against inflation, but they are not highly liquid. Investors also need to accept the fact that the six-month inflation adjustment can rise and fall.

If you want easier access to your money, six-month Treasury bills may be a better fit because the cash comes back at maturity rather than being rolled over. A Treasury-only money market fund is another option, usually at a somewhat lower yield, but with daily access to your cash.

There is also a tax benefit: interest is not taxed until the bonds are cashed in, and the earnings are exempt from state income tax.

How to buy savings bonds

Savings bonds can now be purchased only through the federal website, TreasuryDirect.gov. Opening an account is straightforward, and purchases are made by linking a bank account. You will need your bank routing and account numbers, and the bond will show up in your account the next business day.

You can open an account in your own name using your Social Security number. Each spouse must open a separate account, even if both are paying from a joint bank account. A revocable living trust can also have its own TreasuryDirect account. Gift bonds remain allowed as well, but bonds cannot be purchased inside an IRA.

Annual purchases are limited to $10,000 per person, with a minimum purchase of $25.

The limit is tied to the Social Security number. That means each spouse may buy up to $10,000. If you have both an individual TreasuryDirect account and a revocable living trust tied to your Social Security number, you may need a separate EIN so the trust can buy an additional $10,000 of I bonds.

Bonds may also be registered in two names using “with” or “POD” designation, but only the primary owner’s name and Social Security number count toward the annual limit.

Gift bonds can still be purchased using the recipient’s Social Security number if that person has a TreasuryDirect account. They can also be bought using the recipient’s number while remaining in your own account until you decide to transfer them later or after your death.

Special note: How bonds are handled at death depends on how they are titled. If the bonds include a POD or “with” designation, the surviving named owner can keep them and continue earning interest. Otherwise, they may pass through a trustee or executor. There is no step-up in cost basis at death, so the estate or recipient remains responsible for taxes on the interest that has accrued.

How interest is credited

Interest will not appear in your TreasuryDirect account until the fifth month after purchase. That delay reflects the three-month interest penalty that can apply if the bonds are cashed in too soon, along with the fact that interest is credited the month after it is earned. Even so, you receive six full months of interest at the promised rate for each six-month period, even if you bought the bond partway through that cycle. After that, the rate automatically resets to the next applicable six-month rate.

If your goals are safety and inflation protection, and you are willing to leave your money untouched for five years, Series I Savings Bonds can be a good fit. Just be ready for the rate to change. That is how they are designed to work.

Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” She answers questions on her blog at TerrySavage.com.

©2026 Terry Savage. Distributed by Tribune Content Agency, LLC.