Will Savers Get Better Rates With I Bonds or CDs?

The Series I savings bond will now earn 3.98% from May 1 through October 31, 2025. That could make it the right investment choice for some savers. 

A few years ago, I bonds were a hot commodity: a low-risk investment option designed to protect your money from inflation. That’s when interest rates on these government-issued bonds jumped to an impressive 9.62%, much higher than the near-zero rates on other savings accounts. 

When inflation started to cool, I bonds fell out of favor, as the top certificates of deposit and best high-yield savings accounts began offering better returns.

Right now, some CDs have annual percentage yields above 4%. While bonds and CDs have a lot in common — competitive, guaranteed rates and withdrawal penalties if you take money out before a certain point — they work differently.

“Both CDs and I bonds are good options for conservative, low-risk investors,” said Stephen Kates, financial analyst with Bankrate. However, depending on your goals and timeframe, one may be a better option than the other, he said. 

What are I bonds?

I bonds are investment products backed by the federal government. They have a fixed interest rate, which is set when you buy the bond, and a variable rate, which is tied to inflation and adjusted every six months. The variable rate is designed to protect your investments from inflation that could otherwise chip away at your money’s purchasing power.

Electronic I bonds are available from the US Treasury in increments of $25, with denominations from $25 to $1,000. You can buy up to $10,000 in I bonds each year. You won’t pay state or local taxes on your I bond earnings, but you will pay federal taxes.

You’ll need to leave money in an I bond for at least one year, but it’s better to leave your deposit in the treasury bond for a minimum of five years to avoid interest penalties. 

Like any investment option, there are limitations. “Three of the major downsides of I bonds are the strict investment limit of $10,000 per person per year, the five-year holding period requirement and the fact that the bonds must be owned through the (antiquated) TreasuryDirect system,” said Kates. 

How I bonds stack up against CDs

I bonds and CDs are safe places to store your investment, offering attractive yields and a competitive return on your money. Both require an initial deposit and earn a set interest rate over a period of time. 

However, your variable I bond rate will adjust every six months, while your CD rate is locked in for the entire term. Also, while CDs are readily available at most banks, their rates vary widely depending on the financial institution and the term length. 

With a CD, you’ll have more variety to choose the length of your term — generally from six months to five years — during which you’ll get a fixed interest rate on your deposit. If you’re working with a short-term timeline, you shouldn’t put your funds in an I bond because you can’t withdraw funds within the first year. But if you’re setting aside money for a child’s education or a long-term goal, an I bond allows you to earn interest no matter what happens with the economy. 

I bonds also have some deposit limits and early withdrawal rules that CDs don’t have. 

“There are no CDs that will last for 30 years, so long-term investors who want to hold a single security would benefit from the length of the I bond term,” said Kates. “However, the limits on annual purchases make I bonds a more difficult investment to accumulate. CDs are easier to manage, come in a variety of terms and can more effectively be laddered to balance reinvestment risk and liquidity.”  

Here’s a closer look at how the two savings vehicles compare:

Should you put your money in an I bond or a CD?

The rates for I bonds and CDs are neck-and-neck right now, though you can lock in a slightly higher CD rate at some banks. The decision comes down to when you’ll need your money, how much you have to invest and your risk tolerance.

When to choose a CD

✔️ You’ll need your money soon. You can cash in an I bond after 12 months, but you’ll lose the previous three months’ interest if you access your funds before five years. CDs, on the other hand, come in multiple term lengths, making them ideal for savers who’ll need their money faster.

✔️ You want a fixed rate. If you like the predictability of guaranteed returns, you’ll find it with a CD. Your APY will stay the same for the CD’s entire term, regardless of the overall rate environment.

✔️ You want the highest rate available right now. With top CDs offering APYs over 4%, they’re the clear winner if rate alone is your deciding factor. 

✔️ You have a large amount to invest. You can buy a max of $10,000 in I bonds per year, but jumbo CDs are available in amounts as high as $100,000. Depending on the bank and the term, these CDs may earn more than traditional high-yield CDs.

When to choose an I bond

✔️ You want to hedge against inflation. I bond rates increase as inflation does. So, if rates rise next year, you would likely earn more with an I bond you opened now than with a CD you opened at the same time.

✔️ You have a small amount to invest. You can open an I bond with as little as $25. This can make them a good choice if you don’t have a ton of money to put away and you want the inflation protection I bonds offer. 

✔️ You have a longer investing timeline. If you can afford to keep your money out of sight for years, an I bond could offer you a better long-term return than a CD since its rate is directly tied to inflation.

✔️ You want tax advantages. While CD earnings are subject to state and federal income tax, I bond earnings are only subject to federal income tax. And if you use your I bond earnings to pay for qualified higher education expenses, you may be able to avoid federal income taxes, too.

Other low-risk savings options

I bonds and CDs aren’t suitable for emergency funds because they lack the liquidity most savings accounts offer. If you’re looking for a savings vehicle to continue adding to your emergency fund while having easy access to your cash, consider a high-yield savings account or a money market account. 

Instead of choosing between and I bond and a CD, you can spread your money across several savings and investing accounts. For instance, if you know you won’t need the money for at least five years, and the I bond rate is higher than a five-year CD, you might get an I bond, then build a CD ladder with other funds to have money coming due periodically.