Skip to main content

I Bond Calculator

Calculate Series I savings bond interest from fixed rate, inflation rate, and holding period. Enter values for instant results with step-by-step formulas.

Reviewed by Sahil, Senior Finance & Tax Editor

Reviewed by Sahil, Senior Finance & Tax Editor

Formula

Composite Rate = Fixed Rate + (2 x Semiannual Inflation Rate) + (Fixed Rate x Semiannual Inflation Rate)

The composite rate combines the fixed rate (set at purchase, lasts 30 years) with the semiannual inflation rate (updated every 6 months based on CPI). Interest compounds semiannually. A 3-month interest penalty applies if redeemed before 5 years.

Worked Examples

Example 1: Standard I Bond Purchase Held to Maturity

Problem:You purchase $10,000 in I Bonds with a 1.3% fixed rate and 2.96% current inflation rate. You hold for 5 years. Federal tax rate is 24%.

Solution:Composite rate = 1.3% + (2 x 1.48%) + (1.3% x 1.48%) = 4.28%\nMonthly rate = 4.28% / 12 = 0.357%\nValue after 5 years = $10,000 x (1.0428/2)^10 = $12,350\nTotal interest = $2,350\nNo early redemption penalty (held 5+ years)\nFederal tax on interest = $2,350 x 24% = $564\nAfter-tax return = $2,350 - $564 = $1,786\nNo state tax owed.

Result:Value: $12,350 | Interest: $2,350 | After-tax interest: $1,786

Example 2: Early Redemption with Penalty

Problem:You need to redeem your $10,000 I Bond after 18 months. Fixed rate is 1.3%, inflation rate is 2.96%.

Solution:Composite rate = 4.28%\nValue after 18 months = $10,000 x (1 + 0.0428/12)^18 = $10,656\nEarly redemption penalty = last 3 months interest\nPenalty = value - value/(1 + 0.0428/12)^3 = $10,656 - $10,543 = $113\nRedeemable value = $10,656 - $113 = $10,543\nEffective interest earned = $543 on $10,000 over 18 months\nAnnualized return after penalty = approximately 3.57%

Result:Gross value: $10,656 | Penalty: $113 | Redeemable: $10,543

Frequently Asked Questions

How is the I Bond composite interest rate calculated?

The composite rate uses a specific formula that combines the fixed rate and the semiannual inflation rate. The formula is: Composite Rate = [Fixed Rate + (2 x Semiannual Inflation Rate) + (Fixed Rate x Semiannual Inflation Rate)]. This means the fixed rate and inflation rate work together rather than being simply added. For example, with a 1.3% fixed rate and a 2.96% annualized inflation rate (1.48% semiannual), the composite rate equals 0.013 + (2 x 0.0148) + (0.013 x 0.0148) = 4.28%. The inflation component is updated every May and November based on CPI-U data, while the fixed rate is set at purchase and never changes.

How are I Bond interest earnings taxed?

I Bond interest is subject to federal income tax but exempt from state and local income taxes, giving them a tax advantage over many other fixed-income investments. You have two options for reporting interest: the cash method (default) where you report interest in the year you redeem or the bond matures, or the accrual method where you report interest annually. Most people choose the cash method to defer taxes. If used for qualified higher education expenses at eligible institutions, the interest may be completely tax-free if your income is below certain thresholds. This education exclusion applies to tuition and fees but not room and board.

References

Reviewed by Sahil, Senior Finance & Tax Editor · Editorial policy