How do people make money with I bonds?

Short answer: people do not get rich with I bonds. They preserve purchasing power. I bonds are US government savings bonds whose interest tracks inflation, so your money holds its value while earning a modest real return — currently 4.26% a year, backed by the Treasury.

If that sounds boring, it is. Boring is the product. In a world of volatile markets and evaporating yields, there is a quiet appeal in an investment that has never lost principal and adjusts itself when prices rise.

What an I bond actually is

Series I savings bonds are savings bonds issued by the US Treasury, designed for one job: protecting individual savers from inflation. They are "nonmarketable," which means you cannot trade them — you buy them from the government and redeem them back to the government.

Each I bond earns a composite interest rate made of two parts:

• A fixed rate, set when you buy, that stays with your bond for its entire life — up to 30 years.
• An inflation rate, tied to the Consumer Price Index, that resets every six months.

The two combine into the composite rate you actually earn. Interest accrues monthly and compounds semiannually. Your principal never goes down, even if inflation goes negative — the composite rate simply cannot drop below zero.

This is not a recommendation to buy them. It is an explanation of a tool that behaves unlike almost anything else in personal finance.

The current numbers

For I bonds issued between May 1 and October 31, 2026, the composite rate is 4.26%. That is built from a 0.90% fixed rate and a 1.67% semiannual inflation component.

Two things to understand about that number. First, the 4.26% is annualized, but the inflation half resets every six months — your actual earnings will drift as inflation moves. Second, and more important, only the fixed 0.90% is locked in. Buy today and you keep that 0.90% above inflation for up to 30 years. Wait until after the November 1 reset, and you get whatever fixed rate the Treasury announces next.

The fixed rate is the whole game for long-term holders. When the program launched in 1998, I bonds carried fixed rates as high as 3.40% above inflation — buyers who locked those in earned inflation protection plus a substantial real return for decades, making them among the best savings deals in modern history. Today's 0.90% is respectable by recent standards, but it is a different universe from 3.40%.

The rules that matter

I bonds come with more rules than a savings account, and you should know them before buying:

• You buy through TreasuryDirect, the government's own website, starting at $25. There is no way to buy them through a broker.
• $10,000 per person per year, for electronic bonds. That is the cap — these are a supplement to your savings strategy, not a replacement for it.
• You cannot touch the money for 12 months. Not for emergencies, not for opportunities. The first year is a hard lockup.
• Cash out before five years and you forfeit the last three months of interest. After five years, redemption is penalty-free.
• They earn interest for up to 30 years, then stop. Do not buy them and forget them for four decades.
• Interest is exempt from state and local income taxes, though you owe federal tax — which you can defer until you redeem.

The 12-month lockup is the rule that disqualifies I bonds as an emergency fund for most people. Money you might need this year does not belong in something you legally cannot redeem.

Why people buy them

Three reasons, all variations on safety:

Inflation protection without complexity. Treasury Inflation-Protected Securities do something similar, but their market prices fluctuate — you can lose money selling early. I bonds never show a loss on your statement. The value only goes up.

A floor under your savings. In 2022, when both stocks and bonds fell simultaneously, I bonds were paying over 9% annualized while everything else bled. They are the asset that behaves well precisely when nothing else does — the thing you are glad to own in the years you least want to check your portfolio.

Sleep-well money. There is a category of savings whose job is not growth but certainty — the down payment you are accumulating, the buffer between you and anxiety. I bonds are purpose-built for that category: government-backed, inflation-adjusted, and utterly undramatic.

It helps to compare I bonds against the alternatives directly. A high-yield savings account currently pays around 4 to 4.5% with full liquidity — you can withdraw tomorrow. I bonds pay a similar headline rate but lock your money for a year. What you are buying with that illiquidity is inflation insurance: if inflation spikes, your savings account rate may or may not follow, but your I bond's inflation component will. Against TIPS — the Treasury's other inflation-protected product — I bonds win on simplicity and the guarantee of never showing a loss, but lose on liquidity and purchase size, since TIPS trade freely in any amount through a brokerage.

What they are bad at

Honesty requires the other side:

• The purchase cap is small. At $10,000 a year, a high earner cannot shelter meaningful wealth here. A couple can buy $20,000 a year, plus more through tax refunds, but it stays a side dish — never the main course.
• Liquidity is poor. Twelve months locked, a penalty before five years, and TreasuryDirect's website feels like a time capsule from 2002. This is not money you move quickly.
• They will not build wealth. Over decades, stocks have returned far more. I bonds protect purchasing power; they do not multiply it. A 30-year-old putting retirement savings in I bonds instead of equities is paying an enormous opportunity cost for safety they do not yet need.
• The rate can fall. If inflation cools, the composite rate follows it down. The fixed portion is yours to keep, but the inflation portion owes you nothing.

There is one more friction worth naming: TreasuryDirect itself. The site requires identity verification that can be finicky, uses an old-fashioned interface, and offers nothing like the polish of a modern brokerage app. It works, and millions of people use it — but set your expectations accordingly, and beware of lookalike sites. Only ever buy through the official TreasuryDirect website.

The fixed rate is the whole game

If there is one strategic insight to I bonds, it is this: buy for the fixed rate, not the composite.

The composite rate gets the headlines — 4.26% sounds exciting until you realize half of it is just keeping up with rising prices. The fixed rate is your actual real return: the amount by which you will beat inflation, guaranteed, for decades.

That makes the calendar matter. The Treasury announces new rates every May 1 and November 1. Buying just before a reset locks in the current fixed rate; waiting gives you the next one. Nobody knows in advance which will be higher. But understanding that you are choosing a decades-long real yield — not chasing a headline number — is what separates I bond buyers who benefit from those who merely react.

Who they are actually for

I bonds make sense for savers with cash they will not need for at least a year who want inflation protection, for people in high-tax states where the state tax exemption is genuinely valuable, and for anyone building the conservative portion of their savings — the part that is supposed to be boring.

They make less sense for emergency funds you might need within 12 months, for retirement money with a 30-year horizon that should be growing, and for anyone who has not yet captured an employer retirement match. Free money beats inflation protection every time.

They are also worth a look for anyone sitting on cash beyond their emergency fund with no clear purpose — the savings account that keeps growing because you never decided what it was for. Giving that money a job, even a boring inflation-tracking one, beats letting it drift. And parents and grandparents should know I bonds can be bought for children too, within the same annual limits — a slow, safe head start that a ten-year-old will not appreciate and a twenty-five-year-old might.

The bottom line

Nobody ever got rich from I bonds, and nobody was supposed to. They are a promise from the government that your savings will not quietly evaporate while prices rise — modest, capped, occasionally clunky to buy, and utterly reliable at the one job they do.

In a financial culture obsessed with maximizing returns, there is something almost radical about an investment whose pitch is "you will not lose." If that sentence appeals to you, and you can part with the money for a year, I bonds might deserve a small corner of your savings. Just do not expect them to do the work of your whole portfolio. They were never built for that.