I Bond Returns: Almost Too Good To Be True – Financial Samurai

Every few years, the financial world discovers a “cheat code” a boring little
product that suddenly pays eye-popping returns with almost no risk. In 2022 and
2023, that role belonged to Series I savings bonds, better known as I Bonds. When
headlines screamed that these inflation-linked bonds were paying up to 9.62%,
cautious savers and spreadsheets everywhere started to shake with excitement.

Financial Samurai jumped on the opportunity early, walking readers through why
I Bond returns felt almost too good to be true. At a time when many bank
accounts were paying close to nothing, I Bonds were handing out equity-like
returns with Treasury-backed safety. That combination felt like the financial
equivalent of finding a perfectly ripe avocado on the supermarket discount rack.

Today, inflation has cooled and I Bond rates have come back down to earth.
Newly issued I Bonds currently offer a composite rate in the rough mid–4% range
(as of late 2025), combining a modest fixed rate with a still-solid inflation
adjustment. That’s no longer viral-on-Twitter exciting, but it’s still
competitive with many other low-risk options and comes with some unique tax and
inflation benefits.

So were those I Bond returns really “too good to be true,” or just a rare
moment when boring government paperwork beat Wall Street at its own game?
Let’s unpack how I Bonds work, where they shine, where they disappoint, and
how a Financial Samurai–style investor might use them now.

What Exactly Are I Bonds?

Series I savings bonds are U.S. government savings bonds designed to protect
your money from inflation. You buy them directly from the U.S. Treasury,
usually through the TreasuryDirect website, and you hold them in an online
account instead of a brokerage.

I Bonds are “non-marketable,” which means you can’t trade them on the open
market the way you would with a regular Treasury or a Treasury Inflation-Protected
Security (TIPS). You buy them from the government, and you redeem them back to
the government. On the plus side, they’re backed by the full faith and credit
of the United States essentially the gold standard for safety in dollar terms.

How the composite rate works

I Bond returns come from two pieces added together into one “composite rate”:

• Fixed rate: Set on the day you buy the bond and never
  changes for as long as you hold it (up to 30 years).
• Inflation rate: Adjusted every six months based on changes
  in the Consumer Price Index for All Urban Consumers (CPI-U).

The Treasury combines those into a single composite rate using this formula:

Composite rate = fixed rate + (2 × inflation rate) + (fixed rate × inflation rate)

The key takeaway: when inflation spikes, the inflation component jumps and
your I Bond rate can soar. When inflation falls, the variable component drops,
and your total return moves back toward something more normal.

You earn interest monthly, and it compounds semiannually. The rate you get
applies for six months from the date you bought the bond, then resets every
six months according to the new inflation data. That’s why different I Bond
buyers often have slightly different experiences, even in the same year.

The “Too Good To Be True” Era of I Bond Returns

When inflation went wild (and I Bonds went viral)

In 2022, inflation surged to multi-decade highs. Because I Bonds are pegged to
inflation, their variable rate exploded higher too. For bonds issued between
May and October 2022, the annualized composite rate hit a headline-grabbing
9.62%. That’s not a typo: nearly double-digit returns from a U.S. government
savings bond.

Before that, bonds issued in late 2021 were already earning over 7% on an
annualized basis. Savers who had been parking cash in 0.01% checking accounts
suddenly had a safe way to earn “stock-like” returns without accepting stock
volatility. For many Financial Samurai readers, it sounded like the ultimate
low-risk hack: trade a few clicks and a TreasuryDirect login for returns that
even aggressive growth funds were struggling to beat.

No wonder the Treasury was flooded with new accounts and I Bond purchases.
Billions of dollars poured in as people rushed to lock in high inflation-linked
rates before the next reset. If you were in the personal-finance world at the
time, you probably saw I Bonds discussed everywhere blogs, podcasts, Reddit,
and yes, trending on social media.

From sizzle back to “just” solid

Of course, those sky-high returns were never meant to last. As inflation began
to cool, the inflation component of the I Bond rate also moved down. By
mid–2023, the composite rate had fallen back into the mid–4% range for new
issues still attractive, but no longer the stuff of viral screenshots.

Fast-forward to late 2025 and new I Bonds are paying a composite rate in the
general 4% neighborhood, combining:

• A fixed rate around 0.9%–1.1% locked in for the life of the bond.
• A variable inflation adjustment based on the most recent CPI data.

That’s still competitive with many savings accounts and some shorter-term
CDs, especially when you factor in the tax benefits. But it’s very different
from the 7%–9.62% “golden window” that made I Bonds feel almost unfair in
2022.

Why I Bond Returns Look So Attractive

1. True inflation protection

Unlike a typical bank account or even most CDs, I Bonds explicitly protect
you from inflation, because their variable rate is tied to CPI. When prices
are rising quickly, your I Bond rate tends to rise, too. That means your
purchasing power has a better chance of staying intact instead of quietly
eroding over time.

2. Government-backed safety

I Bonds are backed by the U.S. Treasury. If you’re worried about your bank
going under or your stock fund dropping 30% during a rough year, the idea of
a virtually risk-free asset with a historically strong inflation adjustment
looks extremely appealing.

3. Tax perks that quietly boost your real return

Another reason I Bonds feel “too good to be true” is how taxes work:

• You don’t pay federal income tax on the interest until you cash the bond or
  it matures (up to 30 years), letting the gains compound tax-deferred.
• You never pay state or local income taxes on I Bond interest, which
  is a big win if you live in a high-tax state.
• In some cases, if you use I Bonds for qualified higher-education expenses
  and meet income and other requirements, you may be able to exclude some or
  all of the interest from federal tax as well.

When you compare I Bonds with a taxable savings account or CD in a high-tax
state, their after-tax returns can look even better than the headline numbers
suggest.

4. Automatic compounding and no reinvestment risk

With a CD or bank promo, you often have to decide what to do when the term
ends: roll it over, move it, or chase a new rate. I Bonds keep compounding
automatically for up to 30 years. You don’t have to babysit them or constantly
shop for the next teaser rate.

The Fine Print: Why I Bonds Aren’t Perfect

So far, I Bonds sound like a magic trick: high-ish yield, inflation protection,
government backing, and tax perks. But there are catches the kind of details
Financial Samurai is always quick to highlight.

1. Purchase limits

You can’t just dump your entire net worth into I Bonds. The annual purchase
limits are:

• Up to $10,000 per calendar year per Social Security number in electronic I Bonds.
• An additional amount through certain entities (like trusts or businesses),
  each with its own limit.

In the past, you could also buy up to $5,000 in paper I Bonds with your federal
tax refund, but that path has been phased out. For most people, the realistic
cap is $10,000 per person per year, maybe more if you use entities or gifts
helpful, but not portfolio-transforming if you’re managing larger sums.

2. Liquidity restrictions and penalties

I Bonds are not “instant access” money. Two key rules:

• You cannot redeem an I Bond at all in the first 12 months.
  That money is locked up, period.
• If you redeem within the first five years, you lose the last three months of
  interest as a penalty.

That doesn’t make I Bonds bad, but it does mean they’re a poor fit for your
primary emergency fund. If your roof leaks next month, TreasuryDirect is not
where you want your only cash.

3. Rates go down as well as up

The same inflation link that made I Bonds shine in 2022 also means that
returns can drift lower when inflation cools. When CPI moderates, the variable
rate drops, and your total return can fall into a very normal, almost boring
range. That’s what we’re seeing today: still solid, but no longer jaw-dropping.

If you only bought I Bonds expecting 9% forever, you were chasing a moment,
not a long-term strategy.

4. The TreasuryDirect experience

Finally, we have to talk about the website. TreasuryDirect is legendary for
feeling like a time capsule from the early 2000s multiple passwords, clunky
navigation, and the occasional need to mail in forms. It has improved somewhat,
but it still isn’t as smooth as logging into a modern brokerage or banking app.

For a Financial Samurai type who is comfortable filling out forms, this is
annoying but manageable. For someone who hates dealing with government portals,
it can be a genuine barrier.

I Bonds vs Other Safe Havens for Your Cash

To decide whether I Bond returns are really “too good to be true,” you need to
compare them to the competition: high-yield savings accounts, CDs, money market
funds, and TIPS.

I Bonds vs. high-yield savings and money market funds

Online banks and money market funds often pay attractive variable rates with
daily liquidity. When short-term interest rates are high, these accounts can
yield around the same or more than I Bonds with no one-year lockup and no
penalty for withdrawals.

However, high-yield savings rates can change quickly and are fully taxable at
both federal and state levels. I Bonds, by contrast:

• Defer federal tax until redemption or maturity.
• Never incur state or local income tax on interest.
• Build in inflation protection rather than just chasing Fed policy.

Roughly speaking, I Bonds can win on after-tax, after-inflation returns over
the long run, while savings accounts win on flexibility and ease of use.

I Bonds vs. CDs

CDs usually offer:

• A fixed rate for a set term (say, 1–5 years).
• FDIC insurance up to legal limits.
• Penalties if you withdraw early.

While CDs can sometimes beat I Bond rates at a specific moment in time, they
don’t adjust for inflation. If inflation flares up unexpectedly, your CD is
stuck at its original rate, and your real return could shrink or even go
negative after inflation.

I Bonds, on the other hand, float with inflation, giving you better protection
if we hit another period like 2022.

I Bonds vs. TIPS

Treasury Inflation-Protected Securities (TIPS) are the “cousins” of I Bonds.
They also protect against inflation, but in a different way:

• TIPS are marketable and tradeable; their prices can go up and down.
• The principal value of a TIPS bond adjusts with inflation, and interest is
  paid on that adjusted principal.
• You’re exposed to interest-rate risk if market yields rise, your TIPS
  price can fall in the short term.

I Bonds avoid that mark-to-market volatility. Your principal doesn’t fluctuate
with market rates; you just see a changing interest rate over time. You also
get more flexible tax timing with I Bonds, since you can defer federal tax
until redemption, while TIPS interest is typically taxable each year.

In a Financial Samurai framework, it’s reasonable to think of I Bonds as a
more conservative, easier-to-manage inflation hedge, and TIPS as the more
flexible but more complex cousin that fits better inside a diversified bond
portfolio or retirement account.

Who I Bonds Are Best For Right Now

With rates back down from the 9.62% fireworks, the question becomes: Are I
Bonds still worth it? For many people, the answer is “yes, but for a
specific role.”

• Long-term savers who hate inflation: If watching your cash
  lose purchasing power keeps you up at night, I Bonds are a great antidote.
• Tax-conscious investors: State-tax-free interest and
  federal tax deferral make I Bonds especially attractive in higher brackets.
• Parents planning for college: Used correctly, I Bonds can
  help fund education with potential additional tax advantages.
• People building a “laddered” safety bucket: A mix of
  high-yield savings for immediate access, I Bonds for inflation-protected
  long-term safety, and maybe CDs or TIPS for diversification can work very
  well together.

Where I Bonds are less ideal:

• As your only emergency fund.
• As a speculative trade the days of easy 9%+ are gone, at least for now.
• As a home for very large balances, due to purchase limits and the hassle of
  managing multiple entities.

How a Financial Samurai Might Use I Bonds

The original Financial Samurai take on I Bonds blended enthusiasm with realism:
they were a fantastic opportunity for a limited time, but never a complete
portfolio solution. That mindset still applies.

A Samurai-style approach might look like this:

• Max out annual I Bond purchases for you (and possibly your spouse, trust, or
  business) when the composite rate is clearly attractive relative to other
  safe options.
• Treat I Bonds as part of your “safe” bucket, alongside Treasuries, CDs, or
  cash, rather than as a replacement for equities or growth assets.
• Use the inflation protection and tax deferral to quietly improve your real
  long-term returns, while your riskier assets do the heavy lifting for
  growth.
• Stay flexible. As rates, inflation, and your own goals change, it’s okay to
  slow or pause I Bond purchases and redirect new contributions elsewhere.

In other words, I Bonds can be a sharp tool in your financial toolkit but
they’re still just one tool. The real power comes from how you combine safe
assets, growth assets, and income strategies into a coherent plan.

Experience Spotlight: Living Through the I Bond Boom

To see how this plays out in real life, imagine an investor named Alex who
closely followed Financial Samurai during the I Bond mania years.

In late 2021, Alex was sitting on a big pile of cash after selling a rental
property. The proceeds landed in a savings account earning basically nothing,
and inflation headlines were everywhere. Groceries, gas, and home repairs
were all getting more expensive. Alex felt like every month of leaving that
money in cash was the financial equivalent of watching dollar bills slowly
evaporate.

Then the news hit: Series I savings bonds were offering over 7% with the
possibility of even higher rates coming and they were backed by the U.S.
government. Alex read a detailed breakdown from Financial Samurai and cross-checked
it against other reputable sources. The conclusion was clear: this wasn’t some
exotic product or crypto scheme. It was a straightforward inflation-hedged
bond the Treasury had offered for years. The only thing that had changed was
inflation itself.

Alex decided to act, but not recklessly. Instead of dumping the entire property
windfall into I Bonds, Alex:

• Bought $10,000 of I Bonds for themself.
• Encouraged their spouse to do the same.
• Kept several months of living expenses in a high-yield savings account for
  genuine emergencies.
• Used the remaining cash to dollar-cost average into a diversified portfolio
  of index funds.

Over the next year, those I Bonds delivered exactly what the headlines promised:
high, inflation-linked returns with no day-to-day volatility. Meanwhile, the
stock market had a rocky stretch, and some of Alex’s equity positions were
temporarily underwater. Seeing the I Bonds quietly compounding above 7%, then
above 9%, made it psychologically easier for Alex to stick with the equity
plan and not panic-sell during turbulence.

By 2023, the composite rate on new I Bonds had fallen. Alex stopped treating
I Bonds like a once-in-a-lifetime opportunity and went back to viewing them
as a good, but not dominant, part of the safety bucket. The existing bonds
kept adapting to new inflation data, and Alex was comfortable holding them for
years, or even decades, letting inflation protection and tax deferral quietly
do their job.

A few key lessons came out of Alex’s experience:

• Good deals are often temporary. The 9.62% era was a
  product of extraordinary inflation, not some permanent new normal. Alex
  treated it like a bonus, not a baseline.
• Liquidity matters. Alex avoided the temptation to put all
  emergency cash into I Bonds. When the car needed repairs and a medical bill
  hit in the same month, that liquid savings account did exactly what it was
  supposed to do.
• Psychology is part of your return. Knowing that a slice of
  the portfolio was earning strong, low-risk returns helped Alex stay calmer
  about the parts that were temporarily down.
• Process beats prediction. Instead of trying to time every
  rate change, Alex followed a simple process: max out I Bond purchases in
  years when the composite rate looked clearly attractive, keep enough cash
  liquid, and continue investing regularly in long-term growth assets.

That’s exactly the sort of balanced, long-horizon mindset that Financial Samurai
often emphasizes: use opportunities, but don’t bet the farm on any single
product or moment in time.

Bottom Line: Still Strong, Just Not “Free Money”

I Bond returns absolutely did feel almost too good to be true during
the height of the inflation surge. For a brief period, you could get
stock-like returns from a government-backed bond with built-in inflation
protection and friendly tax treatment. That window may never look quite the
same again.

But that doesn’t mean I Bonds are suddenly irrelevant. Today, with more normal
inflation and mid-single-digit composite rates, they still offer:

• Solid, low-risk returns.
• Protection against future inflation surprises.
• Tax advantages that quietly boost your real yield.
• A helpful psychological anchor in a portfolio that also includes stocks,
  real estate, or other riskier assets.

Are I Bond returns “too good to be true”? Not anymore and that’s okay.
They’re not magic. They’re simply one of the most elegant tools the U.S.
Treasury has ever offered for savers who care about safety and
purchasing power. Used thoughtfully, in true Financial Samurai fashion, they
can help you protect your hard-earned money while the rest of your portfolio
goes to battle.