Series I Savings Bonds vs the stock market

Wednesday, May 1st, 2013
Categorized as: Savings Bonds and competitive investmentsSeries I US Savings Bonds

Ask 100 financial advisors whether stocks or Savings Bonds are the better investment for the long term, and all the ones who earn commissions selling stocks will tell you that stocks are always the better investment.

Let’s take a look and see if they’re right. The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.

The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through May 1, 2013.

The thin, black line shows how much money has been invested. It goes up very steadily because an equal amount of money is added each month. This month, it’s at 177. In other words, the total amount invested is whatever equal monthly investment you choose times 177.

The upper blue line is the total value of the Series I Savings Bond investment. Note that this line never goes down. This month it’s 256.44 times the monthly investment. This is 44.9% more than the total amount invested.

The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends. This month it’s at 270.26 times the monthly investment. This is 52.7% more than the total amount invested.

At any rate, no matter what this graph says, don’t buy Savings Bonds expecting to outperform stocks.

Buy Savings Bonds because you can’t get back less than you put in. They make a great foundational choice for the low-risk portion of your investment portfolio.

That said, it’s clear that people who tell you that a stock investment always outperforms an investment in Savings Bonds don’t know what they’re talking about.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:


On June 2nd, 2006 Charles said:

Stocks vs. bond returns will always depend on the time frame you select to look at. Personally, I prefer bonds even knowing that if I would have chosen stocks over bonds 20+ years ago, I would be much better off today. After watching several friends pick stocks over bonds in the past few years and promptly lose 20- 30% I like bonds even better.

The story that goes around my family circle – bonds vs. stocks vs. gold is about my great grand parents and the great depression. They immigrated from Switzerland in the early 1900’s and were basically poor Oklahoma dirt farmers even with several hundred acres of land. They were considered well off thru 1930’s because they owned at least some bonds and no stocks. They did however surrender their gold when Roosevelt made it illegal for the public in 1932 and then doubled the price once the public had “rendered unto Caesar”.

In a country that constantly harps about the low to negative savings rate of Americans, I do find it ridiculous that bond interest which for the most part is nothing more than inflation rendering a zero return after taxes, is taxed as ordinary income and can be as high as 35% while stocks enjoy a maximum 15% long term capital gain if held for only one year. Of course stocks have never been touted as “Patriotic” the way bonds have either :’)

As for CD’s vs. Bonds, one of my prized possessions is a cancelled check from Union Trust Bank Oklahoma dated Nov. 1934 payable for .06 cents. It has a signature on the back and written under it “In memory of $100 withdrawn on time”.

On June 3rd, 2006 Mario said:

Completely agree with Charles’ comment on bond taxation – even more ridiculous that bond funds’ distributions are also taxed at ordinary income vs. stock dividends at reduced capital gains. Obviously, the government is trying to make us all go broke during the next recession.

Any advice what a good bond vs. stock proportion of a portfolio might be for a long term horizon? Mine is 95% bonds/5% stock right now and I’m wondering if I’m missing out on some great returns. At least, I’m not losing money.

On June 4th, 2006 Tom Adams said:

Mario – until someone has a working crystal ball or is otherwise able to reliably predict the future, you aren’t going to get an answer that you can depend on to your question of the best stock/bond mix for your portfolio.

But, given that it’s all just guesswork, the thing to watch with stocks is P/E ratios. Long terms moves in the stock market are basically investors falling in love with stocks, which raises P/E ratios, followed by investors being disappointed by stocks, which lowers P/E ratios. We’re currently in a long-term cycle of declining P/E ratios, but by historical standards they still have a long way to go.

If you’d be interested in at in-depth look at long-term cycles in P/E ratios and where we are historically, I recommend Unexpected Returns by Ed Easterling.

On September 2nd, 2006 Mike said:

The I-bond to stock comparison is interesting, but the really useful comparison in my mind would be a comparison of I-bond, EE-bond, taxable money market and/or municipal money market.

On September 14th, 2006 Tom Adams said:

Mike – I can tell you in words what the results would show: the I bond line would be where it is in the graph on this page. Under it would be the EE line, under that the money market line, under that the municipal money market line, and then the amount invested line as shown above.

The lines would be on top of one another initially, then they would gradually separate as time went on. Unlike the 500-Index fund line, all of them would be smooth lines with no ups-and-downs.

On November 6th, 2006 Steve the K said:

When I was a dumb kid during the late 1980s through the late 1990s, I had all my investment funds, what I had of them, in corporate bond funds. Stocks were too risky for me. I now kick myself seeing all the gain I could have had if I put my money in even a mediocre large cap blend equity fund. The bond fund drifted up and down as interest rates fell and rose, whereas the S&P 500 went VOOM.

Fortunately, I eventually realized my foolishness and drifted into equities. Granted the dot-com bust in 2000-2002 hurt, especially my dabbling in individual “Blue Chip” stocks, but I took it as a buying opportunity in VFINX and MUHLX. I’m doing much better now, but still regret being all in bonds when stocks were the place to be.

Another reason equities will do better than bonds in the long term is that, as Ron Muhlenkamp says, a company’s CFO works FOR the stockholder and works AGAINST the bondholder. How many CEOs own stock options? (a lot) How many CEOs own bond options? (none)

Of course, the chart was based on the original I Bonds, earning ~3.6% + inflation — very generous of the taxpayer, if you ask me. I wonder what the chart would look like if starting from 2003 when I Bonds earned ~1% + inflation? Considering long term Treasuries return about 3% over the rate of inflation on average, I doubt we’ll see >3% base rate on the I Bond unless we get another situation of “irrational exuberance” and the Federal Reserve hiking interest rates to draw money out of the stock market.

On March 2nd, 2007 Ken said:

I bet after today, the I bonds may have the lead again. I really appreciate the I-bond feature of not losing principal especially in these times. If only the base rate was a little higher.

On March 25th, 2007 Robert said:

Tom , I have chosen to make I-Bonds an essential part of saving for my daughters education. I am in the 33% tax bracket which boosts the tax adjusted yield of of I-bonds nearly 1.5% yearly. Giving me tax deferred gains of nearly 6 percent for the current issue of I-bonds. There is no other government insured security or investment vehicle that can do that. 529 plans, although tax deferred, cannot promise a greater gauranteed yield with government insured products. I would think that a portion of educational funding invested in I-bonds would make a reasonable cushion against the stock market for anyone.

On April 10th, 2007 Jud said:

Okay, I-Bond Rate, 4.52%. eTrade FDIC saving account APY, 5.05%. Even with the small tax savings on I-Bonds, you’ll earn more money with eTrade.

So, how is I-Bond better again?

On April 10th, 2007 Tom Adams said:

Jud – while on any given day there will be a bank offering unusally high teaser rates to get customers, historically, Savings Bonds have been the better investment.

Tom Adams

On September 6th, 2007 Mike McCune said:

Hi Tom, I like to check out this comparison chart each month, but I doubt if one held the Vanguard 500 in a taxable account that the chart would look the same on an absolute return basis. Or, do you account for the tax-deferred compounding of I-bonds? Thanks. -Mike.

On September 6th, 2007 Tom Adams said:

Hi Mike – you are correct – on a tax-deferred basis the I bonds would look even better. The chart doesn’t take the fact that the Vanguard 500 dividends are taxable each year into account.

Or another way to think of it would be that the chart compares Series I Savings Bonds to the Vanguard 500 Index Fund held in a retirement account.

It wouldn’t really be a fair comparison otherwise because you do have to pay tax on the Savings Bonds some day and at that point the after-tax redemption value of the I bonds would drop, but that drop would never appear on the chart.

Tom Adams

On September 6th, 2007 Wayne Adam said:

As I look back and wondered what made me buy I bonds, I remember a bank employee telling me they are better than CD’S. Well he was right. Two things bother me so. First, as stated before, these bonds are for inflationary benefit, unlike its counterpart, the EE bond. Why buy bonds? What is wrong with a 4-1/2% CD.? I feel that the I bond has a lot of better value. The interest is only taxable when you take it out and that may be a long time away. Lets say you earn only $10,000 a year and the tax cut off for paying taxes is the same. You dont pay any taxes. Next year the same thing BUT, the government raise the tax cut off each year, not a lot but a little. Now this year, it may be $10,100. That may pay for the interest you earned. Also, the savings bonds, unlike CD’s are free from tax on the state level, which adds a little to the interest rate. They are also free from taxes if you use them for higher education. If So my opion is that bonds are better than CD’ invest $5000 in a CD and you need the money, you can lose 3 months interest on the whole CD, but with bonds, after one year, you can cash in only what you need, so don’t buy 1 $5000 bond. Buy 10 $500’s or 100 $50’s or some combination like that. I buy bonds and cash them in every five years and buy new ones. I cash them in because I have no taxable income so I take care of the interest then. I am blind and with the exempion I can earn up to $12000 a year before I pay taxes. I cash in say $100,000 and the interest may be $12000. Guess what. No taxes. I then reinvest the money into Bonds up to the $60000 level (paper and electronic) and the remaining the following year. You may be able to do this for children. If you buy bonds in there name at age 10, you cash them in at age 15. If it is there social security number on it they pay taxes. I always recommend seeing a tax perparer first. OK second, why are bonds JUST keeping up with inflation? Good question. I don’t know the answer but if you look for the same kind of safety and security that some like myself want, it sure beats banks and other investments like CD’s. The I bond is the way to go. The EE bond is so behind the times it is rediculous. The only one that makes money on that one is the government. Stick to I bonds.

On December 11th, 2007 marisol said:

could someone help me I am trying to set up a savings for my daughter and I am not sure weather to set up a savings account or go with I bonds?

On January 26th, 2008 Mike McCune said:

Hi Tom, With the S&P 500 index dropping nearly 10% for the first 4 weeks of the year, it seems that it had a relatively short, unimpressive reign of out-performance. It’s no wonder the government significantly dropped the annual purchase limits of savings bonds. And to think, the government is significantly raising the mortgage limits backed by Freddie, and Fannie? Thanks. -Mike M.

On January 28th, 2008 Tom Adams said:

Hi Mike – Buying stocks when the S&P line is below the total investment line on this graph and selling them when it’s above the I bond line does look like a profitable way to trade, doesn’t it?

It’s probably too long-term for most, however.

Tom Adams

On January 28th, 2008 Mike McCune said:

Tom, Yes, that would be a great strategy if only one could overcome the desire to buy the safe I-bonds during downturns. Maybe one should start cashing in I-bonds (with the lowest fixed rates first- the May ’03’s are turning 5 this year) and buying into the S & P index with the proceeds? When I was 30 (and had a relatively long-term outlook) I did not think about such things. But now I don’t have as long-of-term of an outlook. I forget which economist (perhaps Keynes or Galbraith) said something to the effect that “we make decisions for the short term because in the long term we are all dead”.

And with my oldest starting college this fall, maybe I will cash in some of those older EE’s too. Thanks, Mike.

On January 29th, 2008 Tom Adams said:

Hi Mike – To be clear, I’m not recommending getting out of Savings Bonds now.

I think it will be six months to three years before stocks find a bottom. This is going to be a long, miserable recession/depression and Savings Bonds are a great place to have your money.

Don’t start thinking about switching to stocks until the stock line is the lowest line on this chart.

Tom Adams

On March 15th, 2008 jim shehorn said:

Looking to retire jul 09. Fully in dropping equities.
Bad/good time to lick my wounds and get out or stay the course for the rise from the bottom?

On March 18th, 2008 Tom Adams said:

Hi Jim – My advice has always been to have a portion of your portfolio in low-risk securities. My opinion is that you should move at least 10% into a TIPS fund or something similar.

Tom Adams

On April 6th, 2008 greg said:

the 1999 i bonds probably have higher fixed rate,then more recent i bonds so all i bonds are not beating the market.

On April 7th, 2008 Tom Adams said:

Greg – True, but no I bonds are declining in value, either.

Tom Adams

On April 7th, 2008 Jeff said:


Do you think the fixed rate will go higher or lower on I bonds after the MAY 1st ajustment??


On April 8th, 2008 Tom Adams said:

Jeff – unless the level of TIPS interest rates unexpectedly skyrockets between now and May 1, the I bond fixed rate will be lower after May 1

Tom Adams

On April 21st, 2008 Robert Stavnem said:

Who makes the decision to lower the amount of money one can make to I-Bonds.

On April 21st, 2008 Tom Adams said:

Robert – I bonds reflect the prevailing level of interest rates in the market. Some would say the Federal Reserve sets those rates and some would say the market sets those rates based on the supply of money available for investment and the demand for loans.

Tom Adams

On July 2nd, 2008 Ken said:

It might not be long before the index fund is below the black line again.

If the index continues to do poorly this summer, we may see the 10-year anniversary of the I Bond with a better 10-year record than the S&P index.

On September 6th, 2008 Mike said:

Ken, I believe you are right.


On September 27th, 2008 Indra said:

Is this chart updated regularly during a fixed week of the month? What week/date?

On September 29th, 2008 Tom Adams said:

Indra – The information I need to update the chart isn’t available until the second business day of the month, so it’s never before that. Usually it’s that day, unless I forget – then it’s when I remember.

Tom Adams

On September 30th, 2008 jeff said:


What’s your opinion on I bonds? I have $5000 i want to put somewhere, but CD’s , and internet banks seem to have decent rates and more flexibility. Any suggestions?? Also, any predictions on what I bonds will do when the adjustment happens Nov. 1st?

thanks jeff

On October 1st, 2008 Tom Adams said:

Jeff – While there’s no doubt its much better right now to already have your money in I bonds than to be putting new money in I bonds, I think they’re still a viable choice for new investments.

You get the direct government guarantee, tax deferment, and inflation-as-measured-by-the-CPI protection. You lose the ability to cash the money for one year and there’s a three-month interest penalty if you cash before five years.

If you go with I bonds, I recommend setting up an online account at TreasuryDirect.

The rate for the next six months looks like it will be relatively high, but come back on Thursday, Oct 16, when we’ll know exactly what it will be.

Tom Adams

On October 7th, 2008 Nik said:

You said:”I recommend setting up an online account at TreasuryDirect.”

Why do you recommend an online account over paper copies?

On October 7th, 2008 Ken said:

After the last few days, I bet the Vanguard 500 index is now below the black line… It’s hard to believe how bad the index has been after 10 years.

On October 8th, 2008 Tom Adams said:

Ken – Agreed.

Nik – Basically I prefer the ease and safety of the Treasury’s online security techniques. With paper bonds, security is handled by getting a bank to certify your signature for every little thing you want to do. I prefer not having to deal with the bank trying to “upsell” me every time I have a Savings Bond transaction.

Tom Adams

On October 8th, 2008 RICHARD HETRICK said:


On October 21st, 2008 dave said:

When the DOW was at 13,000 I switched all my money in my 401K to bonds, now that the DOW is down 4,000 pts when should I pull the trigger and move back into stocks. I guess one thing that confuses me is my bond fund has lost $5,000 in the past month which I did not think was possible.

On October 22nd, 2008 Tom Adams said:

Dave – The redemption value of traditional bonds goes down when interest rates go up. Sounds like you must have corporate bonds, as rates on government bonds have gone down (and redemption values up) since the DOW was at 13,000.

One of the great advantages of Savings Bonds, as opposed to other types of bonds, is that the redemption value never goes down, no matter what interest rates do.

No one can predict what the market will do, but it’s at annual lows right now. Some people think this is about as low as it’s going and others think the fall is just getting started. I think you should consider transferring a small part of the money back to stocks on days when the market makes new lows. Don’t try to do it all at once – do a series of small steps.

Tom Adams

On October 22nd, 2008 dave said:

My bond fund is Pimco Fund Total Return Fund A (PTRAX). My peak was $81,000 and now its around $76,000 for my 401K. I’ve checked on what they are invested in but it doesn’t make much sense to me.

My other choices are alot of T Rowe funds so I might put 20% in the growth fund.

On another note my brother is big in the trucking company and says business STINKS, worse its been since 9/11, he tells me trucking normally leads the economy by 12 to 18 months so your slow and steady investment advice makes sense. Any more words of wisdom is appreciated.

On October 23rd, 2008 Tom Adams said:

Dave – I’d start with 5% rather than 20% and plan to do it about once every month or two over the next couple of years.

Tom Adams

On November 6th, 2008 Rick said:

I have a Series I bond that has a 10/2000 issue date with a fixed rate of 3.60%. Prior to October 1 of 2008, the bond apparently had a composite inflation rate component of 3.12% since the total bond yield was 6.72%.

On October 1 of 2008, the I bond must have had a composite inflation rate component of 4.93% since the total bond yield was 8.53%.

According to the U.S. Savings Bond calculator, the bond will have a composite inflation rate component of 5.01% on April 1, 2009 since the total bond yield is shown by the calculator to be 8.61% on that date.

This is so easy to figure out I don’t understand!

On November 7th, 2008 Tom Adams said:

Rick – The yield tells you what your bond has earned over its entire life, expressed as an annual percentage increase. Dividing it by two gets you nothing.

What you seem to be interested in is what the bond is earning now. The calculator calls that the rate, not the yield. And the rate of that bond is always a bit more than 3.6% plus the inflation adjustment. You can see a list of historical inflation adjustments on the chart here.

Tom Adams

On November 7th, 2008 Rick said:

Hi Tom. Oops! Yes, I did say “total bond yield” but I really meant “total bond rate” in this case. On another note, I wonder if one advantage of owning U.S. Savings Series EE & Series I paper bonds as opposed to owning U.S. Savings Series EE & Series I electronic bonds is that in the advent of an adverse money judgment against the bondholder, it would be relatively easy for the court to redeem the U.S. Savings electronic bonds but it would be much more difficult (impossible?) for the court to redeem the paper bonds assuming the court does not have physical possession of the paper bonds. So what I’m leading to is this: Does the U.S. Treasury have an iron clad rule with positively no exceptions in that the U.S. Treasury will under no circumstances redeem any U.S. Savings paper bonds if anybody other than the original bondholder does not have physical possession of the paper bonds?

On November 8th, 2008 Tom Adams said:

Rick – So you understand now that the rate is an annual rate, good for six months. Dividing it by two gives you the six-month rate, which can’t be compared with anything in the real world.

For your other question, see this post on Savings Bonds and civil suits.

Tom Adams

On December 21st, 2008 Gordon said:

Since the savings interest rate is so low, I’m thinking to lock a few grands in I-Bond for a year. I know there’s a 3 months interest penalty there. Do you think it’s a good idea?

On December 24th, 2008 Tom Adams said:

Gordon – I think it’s a reasonable idea, but we won’t know if it’s “good” until we see how the other options play out – which we won’t know until about the time you cash this in.

Tom Adams

On January 7th, 2009 RICHARD said:


On January 8th, 2009 Tom Adams said:

Richard – the info you’re looking for is here.

Tom Adams

On February 3rd, 2009 Opher S. Vaughn said:

Don’t understand why you say that now is a relatively good time to invest in the stock market as opposed to saving bonds, after you had pointed out just the opposite!

On February 4th, 2009 Tom Adams said:

Opher – the idea with stocks is to buy low and sell high. Compared to historical values, stocks are now on the low side. They could go lower, but any time the red line on the above graph is below the black line is a better time to buy stocks than otherwise.

Tom Adams

On February 19th, 2009 bob warner said:

Hi Tom,

What is maximum amount of EE & I bonds That you can buy, and how has that changed over time? What can be done if you have more than is allowed?

On February 20th, 2009 Tom Adams said:

Bob – This post and this post and their comments answer many of your questions.

Before the recent change to $5,000-per-SSN-per-type-(paper or electronic)-per-series-(I or EE)-per-year the limit was $30,000.

I don’t have a history of changes before that, but this appeared in the Treasury press release about the change to the $5,000 limit:

Savings bond purchases have been subject to an annual limit since Series E Bonds were first issued in 1941. Over the years, limits have been adjusted by the Treasury Department several times and have ranged from a low of $3,750 (at issue price) for Series E bonds from 1941 through 1947 to the $30,000 (issue price) limit that most recently applied to both Series EE and Series I bonds. The limit was last set at $5,000 (issue price) in 1973.

Tom Adams

On February 27th, 2009 Robert Nadler said:

Now that the stock market has become less attractive to a lot of retirement age people and the government needs to borrow larger amounts of money, maybe the government would consider reinstating the original limits for purchasing I Bonds. Who can we contact in government to ask that this be considered?

On February 27th, 2009 Tom Adams said:

Robert – the limits can be changed administratively, but according to this article from the Boston Globe, “So far, Treasury Secretary Timothy Geithner has had to rely on holdovers from the Bush administration because nominations for senior posts at Treasury and other agencies have slowed due to tighter vetting.”

So it may be awhile yet before someone willing to listen to this idea takes office.

Tom Adams

On March 22nd, 2009 Ramon said:

My wife and I are registered together on Treasury direct. Since there are two social security numbers are we allowed to purchase $5000.00 per number or are we seen as one individual?
If we purchase them in the bank as co-owners can we then purchase $5000.00 each?

On March 23rd, 2009 Tom Adams said:

Ramon – the TD account only belongs to one of you and only has one SSN associated with it. Yes, you can designate a co-owner for a bond in TD, but that doesn’t change the name on the account. You need to open a second TD account for the other spouse, then you can each purchase $5,000.

Tom Adams

On March 23rd, 2009 dave said:

Tom, I keep hearing Peter Schiff say on the news that the Bond Market will collapse due to government spending that will eventually led to high interest rates and hyperinflation. Does this mean IF it happens that all bonds will become worthless because government and businesses cannot pay you back??? Would bonds go back to the crazy interest rates of 18% like in the Jimmy Carter era?? Just a little confuse on what this would mean. A collapse in the stock market I can follow, bonds seem to be a different story. Just wondering where the REAL SAFE HAVEN is for my money.

On March 24th, 2009 Tom Adams said:

Dave – Peter Schiff isn’t talking about Savings Bonds. He’s talking about traditional bonds that decline in value when interest rates go up. Savings Bonds never decline in value, no matter what interest rates do, which make them superior to traditional bonds in the scenario Schiff fears.

So by “collapse” he primarily means “serious price decline” – which Savings Bond investors don’t have to worry about.

On the other hand, it’s theoretically possible, but extremely unlikely, that the Treasury wouldn’t be able to pay you back. However, in that situation I don’t think any investment would be safe.

From a quick look at his book, it appears Schiff recommends Asian stocks, gold, and staying liquid. Savings Bonds that are over a year old are as liquid as you can get.

Tom Adams

On March 25th, 2009 Miles Behrend said:

I scaned your web site for a place to subscribe to your free email alerts but cannot find it.

On March 30th, 2009 Tom Adams said:

Miles – the email alerts have been discontinued.

Tom Adams

On April 7th, 2009 Steve said:


It just occurred to me that by buying Series I Savings Bonds at the end of April one would secure 5.64% for the first six months and then, likely, 0% for another six. This amounts to 2.78% annual, state tax exempt.

Additionally, one can in fact redeem after a little more than 11 months (by buying at the end of April and redeeming at the beginning of March 2010) so that the effective annual rate is actually around 3%.

Comparing with the current 0.6% rate on 1-year treasuries, or 1-year CD rates, which are as high as 2.75% and fully taxable, it seems to me like Series I offer a clear advantage.

Am I missing something?

On April 7th, 2009 Tom Adams said:

Steve – you’re right on, with one clarification – if you invest at the end of April 2009 you can redeem at the beginning of April 2010 (not March 2010). You’re correct that it works out to a bit more than 11 months.

CD rates have fallen quite a bit in the last few months, making this a very interesting strategy. You can check up on the latest national average CD rates here on Savings Bond Advisor. We have a table and a 1- and 5-year graphs (information provided by

Tom Adams

On April 7th, 2009 James said:

Hi Tom

I have a Treasury Direct account and also my wife has one.

I believe I can transfer some of my bonds to her account online at the site.

My question is does it create a taxable event if I do such a transfer ie if I transfer to here $5000 plus interest of $200 …. will I have to show that interest in my taxes even though the bond/s are not cashed.
We are taxed jointly as a married couple …
Thank you so much ,,, James

On April 8th, 2009 Tom Adams said:

James – yes, a transfer would make the interest earned so far taxable to you. Moreover, when your wife eventually cashes the bond, her 1099-INT will include all the interest the bond has earned, including the interest that you’ve already paid tax on. My book calls this the double-taxation trap.

Tom Adams

On April 8th, 2009 greg said:

So if one buys I bonds late in April and sells in April 2010 does the interest penalty come off the last 3 months of ownership?

Possible drawback with buying I bonds April 09 is a reduction in purchasing power for May 09 I bonds with an expected higher base rate to compensate for lack of inflation component.

On April 9th, 2009 Tom Adams said:

Greg – the penalty is always the “most recent three months” of interest – so in this case the most recent three months would be zero. In other words – there’s no penalty.

The reduction in purchasing would be important to those bumping up against the $5,000 per year limit if the fixed-rate goes up. I’d say the chances of that are about 50-50 right now.

Tom Adams

On April 9th, 2009 Joseph said:


Is anyone at the Treasury Dept. REALLY watching the $5000 limit per SS# per calendar year with paper I bond purchases? My local banker told me just the other day that he has a client who is purchasing 5K per month and so far no rejection from the Treasury or money returned. It appears to me that if one doesn’t get greedy and try to buy more than 5K at one time the 5K limit is presently being ignored by the Treasury. As my banker friend said, “Why would the Treasury not take your money?”

On April 10th, 2009 elainemc said:

If I have $5000 to invest today, should I wait till May to see if the rate goes up or split between the April and the May issues? What are the chances that the May rate would be less than the rate available today?

On April 10th, 2009 Tom Adams said:

Joseph – There have been hints through the years that the Treasury doesn’t police it’s own limits on paper bonds (in TreasuryDirect it does), but your banker’s story is a prize winner!

The downside is that if the Treasury starts policing it in the future it can just give you your money back without interest.

Elaine MC – The chances of an increase in the I bond fixed rate right now are about 50-50. The April I bond will return more over 1 year than most bank CDs. The safest thing to do is to buy some now and some in May.

Tom Adams

On April 24th, 2009 Jerry said:


I have two child ages 3 and 7. When they start college can I use my own E or EE Saving Bonds to pay for their school and still receive the tax break OR would it have to be their own savings bonds that pays for college and gets the tax break.

Also, is it worth it for me to still purchase saving bonds in my own name even though I am 37 years old.

Final question, should I purchase I bonds or EE/E bonds for me and my kids going forward. In the long run which is better at the end for the three of us.

Thank you for taking the time to answer my questions.


On April 27th, 2009 Tom Adams said:

Jerry – Historically, I bonds have outperformed EE bonds. Typically people your age buy bonds in their own names.

The college education tax break, should you be otherwise eligible, requires that the bonds be in the name of a parent. There’s more info on that here.

If you don’t expect to be eligible, then putting the bonds in the names of the children can work, as their taxes should be minimal if they’re in college.

You might also want to look at Qualified Tuition Plans for your state (do a Google search), which don’t involve Savings Bonds, but have fewer limitations and restrictions.

Tom Adams

On May 6th, 2009 William Thomason said:

Well, it was a good ride while it lasted. $25,000 invested in 2001 is now worth almost $40,000.

On May 14th, 2009 Robert Cell said:

What penalty on an i-bond redeemed before 5 years now that the bond has a zero yield? Is it the previous three months or the next three months?

On May 15th, 2009 Tom Adams said:

Robert – The penalty is the most recent three months of interest. Example – if you redeem in July, you lose April-May-June.

Be sure you understand when your I bond’s rate goes to zero. For some I bonds this won’t happen until October and three months after that is January.

Tom Adams

On August 10th, 2009 Mike B. said:

Tom – This hasn’t been updated since June. I assume you have just forgotten, so this is a reminder.

On August 11th, 2009 Tom Adams said:

Mike – Busted. And I readily admit that I’m more likely to forget in months when the market goes up. It’s funny how our biases impact our brains.

It’s fixed now.

Tom Adams

On September 3rd, 2009 Rick said:

Hi Tom. I notice that you have been recently recommending putting our monthly investments into the stock market as opposed to Savings Bonds. It seems to me that the wisest thing to do for the moment is to sit tight and just hold cash and/or Zero-Percent C of I especially in lieu of the new bond rates taking effect in November. Speaking for myself, I would hesitate getting my feet wet into the stock market at least for the forseeable future. Even experienced traders have been badly bruised during the last year and explains why many have flocked to government securities and hence the light trading volume. By the way, are U.S. government securities still ultra-safe investments or should we now consider gold, silver, jewelry, etc.?

On September 4th, 2009 Tom Adams said:

Rick – When I say that now is a relatively good time to invest in stocks, all I mean is that when the red stock line in the chart on this page is below the black total investment line it’s a better time to buy stocks than when the red line is above the black line.

I can’t predict the future, but I’m in the camp that thinks you’ll be able to buy all the stock you want at some point in the future at a much lower price than you can buy it today.

If we get to the point where the only investment that has value is physical gold, what’s going to be most important is your personal reputation. Will you be seen as someone who can be trusted, or someone who would “play hardball” for an extra 1%? We know where Wall Street stands.

Tom Adams

On September 7th, 2009 Marty said:

It would be informative if you included 5 year CDs in this analysis. I think they would outperform the other two. You could use an average 5 Year CD rate published by WSJ.Com or some other source.

On September 7th, 2009 Tom Adams said:

Marty – I checked out the site, but could only find current CD rates.

I’m willing to take a look at this, but I would need a monthly historical series of average 5-year CD rates going back to 1998 to do it. Send me the link if the site has this.

Tom Adams

On September 9th, 2009 Marty said:

A great source for historical data is the Federal Reserve. Unfortunately, the only have up to 6 month CD rates. You may want to look at that. I will also see if I can find 5 Yr CD rates elsewhere.

On October 25th, 2009 Robert said:

A couple of observations: It is impressive that as an investment vehicle for the last 11 years that I-bonds have been more effective than the S&P 500 not to mention the added tax benefit. Whether the investment gurus want to admit it or not, I think that anyone would be crazy not to make I-bonds a part of their long term portfolio. When the limits were upto $60,000 total per SSN, I-Bonds could have made a real viable alternative to the stock market as far as retirement is concerned, for example if it were possible to purchase $15,000 of I-Bonds for 31 years that appreciated at 4.5% a year (or 6 % a year considering adjusting for the tax benifit) it would amount to aprroximately $1,352,260.65. There is an interesting article about the inadequacies of 401(k)or 403(b) plans in the October 19 issue of TIME Magazine. I would encourgae all to read it. It basically discusses how most employed persons have only theses plans to rely on from employers and with the volitility of the market these plans are woefully inadequate to support retirees. The truth is you have to retire at the right time and you cannot afford any big market downturn during retirement. With I-bonds there would be no hassle of the market variation that has put so many people in a bind who are on the verge of retiring. There would be consistent albiet not mouth-dropping returns. The big queston is, will the Treasury ever increase the allowable amount to past limits again? It would be nice.

On October 26th, 2009 Tom Adams said:

Robert – It would indeed be nice, but I’ll have to assume that’s a rhetorical question, since none of us will know unless it actually happens.

Tom Adams

On November 3rd, 2009 Temple said:

What is the limit on the amount of paper US Savings Bond one can hold?

Is this limit the face amount or the face amount plus interest?

Thank you,

On November 3rd, 2009 Robi Zocher said:

Robert, one thing you don’t want to do is try and find out who makes the decisions regarding Savings Bonds limits. I tried last year, and I wasted a good part of a couple of days and a few brain cells as well.

I can tell you who doesn’t make decisions regarding Saving Bonds programs: Treasury Direct. I got pretty far up the chain of command there and the one final man I talked to said “good luck”.

I can also tell you that no one in the Congress or in Barney Frank’s office knows or cares about the Saving Bonds programs.

I can also tell you that someone or some committee in the Treasury department probably makes these decisions, but, finding out whom is an exercise in futility.

I too would like to see the limits restored, or at the very least increased, but the Wizard of Saving Bonds remains behind his or her curtain.

Does anyone know who we can lobby on this issue?

On November 4th, 2009 Tom Adams said:

Temple – there are no limits to the number or amount of Savings Bonds you can own. The limit is on how much you can invest per calendar year.

But, for example, you could inherit $100,000 in bonds from ten different people. You’d be up to $1,000,000 (lucky you) but there would be no limit on how much more you could own.

Robi – one person who figured out who to lobby was Professor Peter Tufano, although he was probably working with the IRS, not the Bureau of Public Debt. And here’s a story about the boss of the folks you need to lobby, Van Zeck. Zeck at least knows what Savings Bonds are (see page 2 of the story).

Tom Adams

On November 5th, 2009 Pat said:

In regards to your answer to Temple, could my mother give me a $5k I bond as a gift that would not count toward my annual purchase limit? I assume that if my mother could give me $5k I bond, this would count toward her annual limit right?

On November 6th, 2009 Joseph said:


When does the first three months of hold back interest show up in the total amount of accured interest on an I bond? I purchased I bonds in Nov. 2004 and no interest was shown to be accrued for the first three months. When I updated my SAVINGS BOND WIZARD in Nov. 2009 the total accrued interest did not change from Oct.09 to Nov.09. I was looking for the the hold back interest to show up after the five year holding period had expired.

On November 6th, 2009 Tom Adams said:

Pat – The limit is per Social Security Number, so if your mother purchased a bond and made you the sole the owner but used her own SSN on the purchase form, the investment would go against her SSN. When purchasing a gift Savings Bond, the purchaser is allowed to use her own SSN or the SSN of the recipient, so there’s no rule against doing this.

Joseph – You’ll normally see the value of a Savings Bond jump by four months worth of interest, rather than the usual one month worth, on its 5th anniversary. The reason you didn’t see that with your I bond is that its composite rate for the last six months has been zero. If you check, you’ll see the bond increasing in value in June, July, and August even though the interest rate the previous month was zero. These increases were effectively when you received the penalty interest.

Tom Adams

On November 8th, 2009 Robi Zocher said:

They have a long term plan, and part of it involves Savings Bonds!

On November 9th, 2009 Tom Adams said:

Robi – this is a terrific find. Thanks a billion for the link.

Tom Adams

On November 13th, 2009 ronnie skinner said:

i bought bonds in 12/2008 are they still earning 0 interest and when will they start earning again thanks

On November 16th, 2009 Tom Adams said:

Ronnie – The rate changes for December bonds occur in December and in June. So there’s just a couple more weeks of 0% for you.

Tom Adams

On November 16th, 2009 ronnie skinner said:

ok thanks one more question what about i bought some in march and january of this year thanks when do they start earning

On November 17th, 2009 Tom Adams said:

Ronnie – the rate changes in the month the bond was issued and the month that’s six months after that. So your December bonds will next change in December, January in January, March in March.

Tom Adams

On November 22nd, 2009 Steven said:

The Treasury has said it determines the I bond base-rate taking into account the base-rate of the 10 year TIPS. Right now, the I bond base-rate is .30 and the 10 year TIPS base-rate, in the last auction, was 1.89. I think it’s unfair to Savings Bonds investors that the Treasury set the I bond base-rate so ridiculously low. I would like to make the case for why the I bond base-rate should be equal, or greater, than the 10 year TIPS base-rate.

1. Most Savings bonds investors are US citizens, most long-term Treasury security purchasers are foreign countries or government agencies. Hence, when the Treasury pays $1 of interest on a Savings Bond, it gets back about 20 cents, from the income tax the retail investor pays on the interest. When the Treasury pays $1 of interest to China or Japan on a Treasury security, it gets back zero. Therefore, in the interest of equity, should not the Savings Bond base-rate be higher than the TIPS base-rate to compensate the retail investor for the fact that about 20% of his interest income will be lost to taxes?

2. In your book, you make the point that 5% of all Savings Bonds are never cashed. In effect, this money becomes a gift to the Treasury. One of the reasons I’ve heard for why the Treasury sets the I bond rate so low is to compensate it for the cost of running the Savings Bond program. I assume this means the cost of printing and servicing paper Savings Bonds. Would not this 5% ‘gift’ of uncashed Savings Bonds more than cover the cost of the Savings Bond program ? I doubt that China and Japan ‘forget’ to cash the Treasury securities they purchased, so there is no similar ‘gift’ coming from them.

On November 23rd, 2009 Tom Adams said:

Steven – good points. If the issue is simply the cost of the Savings Bond program, you are correct that the no-interest loan represented by uncashed Savings Bonds would cover the cost of the program.

However, I think the real issue is that Wall Street doesn’t want the government competing with it by offering attractive investments to individuals. If it wasn’t clear before the financial crisis that government is the handmaiden of Wall Street, it’s clear now, and neither evidence nor logic is likely to be useful.

Tom Adams

On November 26th, 2009 Ken said:

When the Treasury cut the annual purchase limit by 1/6th, that was a clear sign that the Treasury was trying to remove competition. I bet there were internal memos at the Treasury which mentioned this.

Now with the annual purchase limit of $10K, I wonder how much competition this really is to Wall Street and the banks. After the annual limit took effect, I was hoping this would allow the Treasury to be more generous with the fixed rate. Instead, the Treasury became more stingy.

On December 8th, 2009 Dave said:

Tom any thoughts on the stock market??? I sold at 13,000 bought back in at 7,000 and 8,000. Thinking about cashing in my gains. Do you think it can keeping going higher?? I know your a bond man but appreciate a outside opinion.


On December 9th, 2009 Tom Adams said:

Dave – nice work. I was also buying during the big dip, but sold what I bought long ago. The gains looked nice at the time, but your patience really paid off.

All of which is another way of saying I expected the stock market to reverse weeks ago. Now I don’t know if I was early or just wrong.

Tom Adams

On December 24th, 2009 Robert said:


I totally agree with your assessment about there being pressure from Wall Street to make savings bonds less attractive and less viable a long term investment be slashing limits. Unfortunately, I suspect that the fixed rate for I bonds to be poor for the next year or so. Although rates are not necessarily correlated to the Federal Reserve, I imagine the fixed rate isn’t far behind Fed interest rates, and from what Bernanke has indcated rates won’t be going anywhere soon until this economy heats up. Nonetheless it is nice to see that I bonds are a good way to weather the storm.

On January 6th, 2010 Mike B. said:

Tom – just a reminder that it’s been over 2 months since the I-bond-vs.-stock graph has been updated.


On January 6th, 2010 Tom Adams said:

Mike – Thanks for the reminder.

Tom Adams

On January 8th, 2010 josh said:

Hi Tom. As to I bonds, they are governed by fluctuation in the CPI. However, excessive money supply and credit can cause hyper inflation without impacting proportionally on the CPI making I bonds under perform Vis A Vis real inflation. I would appreciate your comments .

On January 8th, 2010 Tom Adams said:

Josh – There are a number of comments about whether the CPI is an accurate measure of inflation on the the inflation update page. There may be more accurate measures of inflation, but there aren’t any investments tied to them. So the problem is that the CPI is the only game in town.

Tom Adams

On January 11th, 2010 David Moran said:

Dear Tom, Is it better to pay taxes on a accrual basis than deferred basis if the amount of tax liability would be significant if you held your I bonds until maturity? The facts are I bonds purchased 3-1-2001 3.40% + Inf and 7-1-2001 3.00% + Inf and 4-1-2008 1.20% + Inf. The bonds from 2001 are up 66% and have 21 years to grow it held to maturity. The bonds from 2001 have the potential based on the rule of 72 @ a 6% per year to be 6.3 times the face value with compound interest. I thought about cashing some bonds dated 4-2008 1.20% + Inf in 4-2010 to pay the federal taxes which my tax rate would be 15% in the 2009 tax year. I feel tax rates could be much higher in 20+ years.Thanks Dave

On January 12th, 2010 Tom Adams said:

David – In general, it’s better to pay the taxes when your personal tax rate is lowest. So if your personal tax rate is lower now that it will be in the future, either because you have less income now or because you expect tax rates to increase, then paying the taxes annually makes sense.

However, be aware of the double taxation trap. Whether you pay the taxes annually or not, when the bonds are cashed the 1099-INT will include all the interest the bonds have ever earned.

You have to remember to make adjustments on that tax return for the amount of tax that has already been paid. And if it’s your heirs who are cashing the bonds, will they even know you’ve already paid the tax? Will they be able to provide your old tax returns to the IRS showing the payments if they are audited?

That’s why paying taxes annually ensnares you in the double taxation trap.

Tom Adams

On February 4th, 2010 Pete said:

I read recently that there would be no taxes at all due on I Bonds, no federal and no state tax,providing that the buyer made less than, I think it was, $82,000 per year, and the bonds were issued in his/her name.

I also read that, as of Jan 1,2008, you can only invest up to $5000 per year now in each series of savings bond.

But I would think that the total tax free status would make them an even better savings strategy for someone in that income range. Pete

On February 5th, 2010 Tom Adams said:

Pete – your information about investment limits is correct, but I’ve heard nothing about Congress changing the taxable status of I Bonds and think it’s pretty unlikely. Do you have a reference for that?

Tom Adams

On February 5th, 2010 Pete said:

It turns out that there is a tax free status, but it applies only to higher educational costs.

I have a few older savings bonds but have never redeemed one before. Your site has been a wealth of information both to me and some relatives I have passed it onto that were very thankful also. Thanks for the excellent site about savings bonds! and have a great day!

On February 6th, 2010 Mike McCune said:

Hi Tom, After reading your book a couple years ago a situation in which I thought it would be advantageous to pay taxes on savings bonds as you go, would be with my kids. My kids have gotten some bonds in their names as birthday gifts etc. over the years and while they are young and don’t have much income (implying a low/no tax rate) it would be an advantage to pay taxes each year when they owe no taxes than to allow interest to compound and pay taxes at a higher rate when they are young adults and earning enough to have to pay. But, realistically, I have yet to do it I suppose because of the recordkeeping and relatively small amounts. Thanks.

On February 8th, 2010 Tom Adams said:

Pete – Here’s my page on the education deduction. If you like my web site you’ll love my book!

Mike – Yes, record keeping is the hard part of that strategy.

Tom Adams

On February 16th, 2010 Pete said:

I have 3 online I Bonds. The 1st was purchased on 10/1/2005 and it now shows 0% interest being earned. Would I be better off to cash in this bond and buy a new one at the current rate? or will it go up beyond that rate when it begins to earn again?

The other 2 I bonds were both purchased on 11/1/2005 and they show 4.08% interest being currently earned….yet those 2 show no increase in value since I last checked them over 1 month ago. Why?

I also have many paper I Bonds purchased between Dec 1998 and March 2005. It sounds like these are all going to go into zero % interest also?

On February 17th, 2010 Tom Adams said:

Pete –

a.) Do not trade in old I bonds for new ones!

b.) Spend some time on other pages of this web site where you can learn how I bond interest rates work and the impact of the recent six-month 0% rate period all I bonds went through. Read the comments as well as the main article.

Tom Adams

On March 23rd, 2010 Ken said:

Shouldn’t the graph be through March 1, 2010 instead of March 1, 2009?

On March 23rd, 2010 Tom Adams said:

Ken – (blush) you are correct. I’ll fix that now.

Tom Adams

On April 2nd, 2010 Steven said:

I have seen no way to contact the owner of this website (i.e., other than through comments), so would like to point out to him that the Fact Sheet available from the home page is from April 2008 and misstates the current FDIC limit of $250,000 (i.e., it uses the old $100,000 limit).

It also mentions that updates are available at this website. Where?


On April 2nd, 2010 Tom Adams said:

Steven – Ouch! 2008? I just fixed it. Thanks for the tip about the FDIC insurance error. I would have missed that.

Tom Adams

On April 2nd, 2010 Robi Zocher said:

So to anyone who is holding I Bonds purchased over the last decade or so, and just checked their I Bond’s new rate, I just have to say….Who’s smiling now? (My oldest I Bond is earning 6.11% for the next period, and most of the others are in the mid-to high 4% range.)

On April 6th, 2010 Nik said:

FYI: I Bonds purchased in May 2000 are now earning 6.72%; those purchased in March 2001 are now earning 6.51%. Too bad I didn’t have a crystal ball back then … and more money to invest.

On April 13th, 2010 Jann said:

I’m loving my I Bonds! So should I buy my $5K for this year before or after May 1? Thanks!

On April 28th, 2010 Patrick H said:

I was told that the way interest is calculated, or some other type of calculation was changed during the last administration.

Could you explain what types of calculations were changed during the last administration to the U S Savings Bond?

On April 28th, 2010 Tom Adams said:

Patrick – There have been no changes to the way I bond interest is calculated since they were introduced. EE bond changes are detailed here.

Tom Adams

On April 30th, 2010 Mike M said:

I’ve been getting I bonds since 2001 (1 $50 every 2 weeks)and I never knew they could have a 0 fixed rate. So basically your not earning anything extra since the variable rate is supposed to offset inflation. At least now I know to cash in the newer bonds first and save the “golden era” ones as long as possible.

On May 3rd, 2010 Tom Adams said:

Mike – when it comes time to redeem, you want to redeem with ones with the lowest fixed rate first, not the newest ones.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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