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Series I bonds are a type of savings bond issued by the U.S. Treasury. They are designed to protect against inflation and are generally considered a safe investment because they are backed by the U.S. government.

An I bond is essentially a loan to the government that comes with the promise of returning the investor’s money, typically with interest. What’s distinct about an I bond is that it offers a composite interest rate — a combination of a fixed interest rate and a variable rate that is adjusted every six months for inflation. These bonds also offer some tax advantages.

If you’re considering buying I bonds and you’re wondering how these savings bonds work, here’s what you need to know.

How Do I Bonds Work?

I Bonds are a type of savings bond offered by the U.S. Treasury and backed by the full faith and credit of the U.S. government. These bonds offer two types of interest payments: a fixed rate and an inflation rate, which together provide the bond’s composite rate (or yield).

The fixed-rate portion is determined when the bond is purchased, and it remains the same for the life of the bond. The variable rate gets adjusted twice a year, based on inflation rates. The composite rate on I bonds issued as of November 1, 2025 is 4.03%. If you’re wondering how that rate compares to the interest rate on other types of savings vehicles, the average rate on a 60-month certificate of deposit (CD) in November 2025 was 1.34%, for example, while high-yield savings accounts may offer about 3.00% APY or higher.

Because I Bonds are backed by the U.S. government, they are designed to have a low risk of default. Furthermore, the principal is guaranteed. This is one of the advantages of savings bonds overall. As a result, I Bonds are generally considered low-risk investments.

Individuals who buy I Bonds must hold them for at least 12 months before cashing them in. if they redeem the bonds before the five-year mark, they will lose the last three months of interest. Investors can hold onto I Bonds for up to 30 years, when they reach maturity.

While paper I Bonds used to be available in certain circumstances, all new I Bonds are electronic as of January 1, 2025.

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How Do You Calculate I Bond Interest Rate?

If you are interested in buying bonds like I Bonds, you’ll want to know how to figure out the interest rate. To calculate the I Bonds interest rate, you combine the fixed rate and inflation rate to get the composite rate.

For example, let’s say you bought I bonds when the fixed rate was 1.20% and the inflation rate was 0.95%, to calculate the composite rate you would use this formula:

Plugging in the actual numbers, it would be:

Using these numbers, you’ll earn 3.11% interest on the amount you invested in I Bonds for six months, at which time the rate may change again. So if you invested $1,000 in I Bonds, you would earn $15.55 in interest in six months. The earnings would then be added to your original investment, and for the next six months you would earn interest on that new, higher amount of $1,015.55.

One thing to keep in mind is that if you cash in I Bonds before five years, you will lose the last three months worth of interest. So, if possible, you may want to hang onto them for five years to avoid giving up interest you may have earned.

Are I Bonds Still a Good Investment?

Whether I Bonds make sense for you as an investment depends on a number of factors, your financial goals, risk tolerance, overall investment strategy, and timeline.

Benefits of I Bonds

I Bonds have a number of potential advantages. These include:

•   Lower risk: I Bonds are designed to be a low-risk investment, backed by the U.S. government. If you have a low risk tolerance, I Bonds may be a good choice for you. Also, if you’re looking for a place to park money that you’ll need in five or so years — for a down payment on a house, say — I Bonds can offer a low-risk option.

•   Protection against inflation: I Bonds can help protect your purchasing power in times of high inflation. If inflation rises, the interest rate on I Bonds rises as well. For instance, in May 2022, when inflation was high, I Bonds paid a composite rate of 9.62%. As of November 1, 2024 when inflation was much lower, the composite rate on I Bonds issued was 3.11%.

•   May offer tax advantages: While there are federal taxes on I Bonds, there are no state and local taxes on them.

Drawbacks of I Bonds

There are some downsides to investing in I Bonds, however, such as the following:

•   Time commitment: I Bonds must be held for at least 12 months before they can be redeemed.

•   Possible interest penalty: You’ll lose the last three months’ worth of interest if you sell I Bonds before the five-year mark.

•   Purchase limit: Individuals can purchase no more than $10,000 worth of electronic I Bonds each year through the U.S. Treasury’s Treasury Direct.

•   Lower interest rate: The interest rate may be lower for I Bonds than for some other investments.

•   Hard to predict return over time: To maximize your return on investment when purchasing I Bonds, it’s important to understand how the two interest rate components of the bond can play out over time. As mentioned, the fixed interest rate remains the same for the life of the bond. But the inflation rate of the bond adjusts with changes in inflation rates twice per year. If inflation goes up, so does the bond’s inflation rate. If inflation goes down, the bond’s inflation rate would likewise decrease as well.

I Bonds vs EE Bonds

Investors considering buying savings bonds may want to compare I Bonds and EE Bonds. The two types of bonds have many similarities but also a few key differences.

Similarities

You can buy both EE Bonds and I Bonds from Treasury Direct. Both types of bonds are backed by the full faith and credit of the U.S. government, and they are each designed to be a low-risk investment. They both mature in 30 years.

I Bonds and EE Bonds each have a purchase limit of $10,000 per individual per year.

Differences

One of the main differences between EE Bonds and I Bonds is that EE bonds issued after May 2005 have a fixed interest rate that doesn’t change for at least the first 20 of its 30 years, while I Bonds have a composite rate that combines a fixed rate and an inflation rate, which changes every six months. The interest rate for EE bonds bought as of November 1, 2025 is 2.50%.

One unique feature of EE Bonds is that, over a 20-year period, these bonds are guaranteed to double in value. While I Bonds don’t offer the same guarantee, your principal is guaranteed and the bonds are designed to keep pace with inflation.

Do You Pay Taxes on I Bonds?

Tax-efficient investors may want to consider certain I Bond features. For instance, I Bonds are exempt from local and state taxes. While federal taxes usually apply, they could be deferred until the bond is ultimately sold or matures; whichever happens first.

Additionally, I Bond investors may use the interest payments for qualified higher education expenses and receive a 100% deduction. Some restrictions apply, including:

•   You must cash out your I Bonds the year that you want to claim the exclusion.

•   Your modified adjusted gross income must be less than the cut-off amount the IRS sets for the year.

•   You must use the interest paid to cover qualified higher education expenses for you, your spouse, or your dependent children the same year.

•   You cannot be married, filing separately.

How Do You Buy I Bonds?

You need to meet certain criteria to purchase I Bonds. To be eligible to buy I Bonds you must be:

•   A United States citizen, no matter where you live

•   A United States resident, or

•   A civilian employee of the United States, no matter where you live

If you are eligible to purchase them, buying I Bonds is easy. As previously mentioned, individuals can purchase electronic I Bonds online through Treasury Direct, after setting up a Treasury Direct account. They can be bought in denominations starting at $25. The maximum amount of electronic I Bonds someone can purchase is $10,000 per calendar year.

The Takeaway

If you’re looking for an investment that’s designed to be safe, I Bonds may be worth considering. They are backed by the U.S. government and offer protection from inflation, certain tax advantages, and other benefits that may make them a low-risk choice for your savings goals. However, because I Bonds come with a composite rate of return, it’s hard to predict how much your money will actually earn over time.

If you’re interested in different savings vehicles, there are alternatives to I Bonds, including CDs and high-yield savings accounts. By exploring your options, you can determine the best choice — or choices — for you and your financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How Long Do I Bonds Take to Mature?

I Bonds reach maturity in 30 years. You can redeem I Bonds after holding them for 12 months, but if you cash in I Bonds in less than five years, you’ll lose the last three months of interest.

How Often Can You Buy I Bonds?

In one calendar year, an individual can buy up to $10,000 worth of I Bonds. The limit is counted by the Social Security number of the first person listed on the bond, according to Treasury Direct. If you are a co-owner of I Bonds and the second person named on the bonds, those bonds will not count toward your limit.

In addition, if you give I Bonds as a gift, those bonds count toward the limit of the recipient, not you as the giver.

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Investors usually need to pay taxes on their stocks when and if they sell them, assuming they’ve accrued a capital gain (or profit) from the sale, and the shares are held in a taxable account.

But there are other circumstances when stock holdings may generate a tax liability for an investor: for example, when an investor earns dividends.

This is important for investors to understand so that they can plan for the tax implications of their investment strategy.

An important note: The following should not be considered tax advice. Below, you’ll learn about some tax guidelines, but to fully understand the implications, it’s wise to consult a tax professional.

Do You Have to Pay Taxes on Stocks?

Broadly speaking, yes, investors need to pay taxes on their stock holdings when they sell them for a profit, and when they’re selling shares within a taxable account. Selling stocks in a tax-deferred account, such as an online IRA or 401(k), does not trigger tax on profits from the sale (though withdrawals will be taxed).

The type of tax you need to pay on profit from the sale of a stock depends on how long you’ve held the stock, your income, and filing status. This applies when you’re investing online and through a traditional brokerage firm.

Typically, investors need to pay capital gains tax when they sell a stock — the sale of which usually triggers a taxable event in the form of either a gain or a loss. The main question is: when do you need to pay taxes on stocks, and what else, besides a sale, could trigger a taxable event?

When Do You Pay Taxes on Stocks?

There are several scenarios in which you may owe taxes related to the stocks you hold in an investment account. The most well known is the tax liability incurred when you sell a stock that has appreciated in value since you purchased it. The difference in value is referred to as a capital gain. When you have capital gains, you must pay tax on those earnings.

Capital gains have their own special tax levels and rules. To get a sense of what you might owe after selling a stock, you’d need to check the capital gains tax rate for 2025 or 2026 – more on that below.

You will only owe capital gains tax if your investments are sold for more than you paid for them (you turn a profit from the sale). That’s important to consider – especially if you’re trying to get a sense of taxes, fees, and ROI on your investments.

There are two types of capital gains: Short-term gains and long-term gains, and they’re taxed at different rates.

Short-Term Capital Gains

Short-term capital gains occur when you sell an asset that you’ve owned for one year or less, and which gained in value within that time frame. These gains would be taxed at the same rate as your federal income tax bracket, so they’re important for day traders to consider.

Short-Term Capital Gains Tax Rates for Tax Year 2025

This table shows the federal marginal income tax rates, by filing status and income bracket, for tax year 2025, which apply to short-term capital gains (for tax returns that are usually filed in 2026)

Short-Term Capital Gains Tax Rates for Tax Year 2026

This table shows the federal marginal income tax rates, by filing status and income bracket, for tax year 2026, which apply to short-term capital gains (for tax returns that are usually filed in 2027).

Long-Term Capital Gains

Long-term capital gains tax applies when you sell an asset that gained in value after holding it for more than a year. Depending on your taxable income and tax filing status, you’d be taxed at one of these three rates: 0%, 15%, or 20%.

Overall, long-term capital gains tax rates, according to the IRS, are typically lower than those on short-term capital gains.

Long-Term Capital Gains Tax Rates for 2025

The following chart shows the long-term capital gains tax rates, by income bracket and filing status, for the 2025 tax year, according to the IRS.

Long-Term Capital Gains Tax Rates for 2026

The following table shows the long-term capital gains tax rates for the 2026 tax year by income and status, according to the IRS.

Capital Losses

If you sell a stock for less than you purchased it, the difference is called a capital loss. You can deduct your capital losses from your capital gains each year, and offset the amount in taxes you owe on your capital gains. Note that short term losses must be applied to short term gains first, and long term losses to long term gains first.

If your losses exceed your gains for the year, you can also apply up to $3,000 in investment losses to offset regular income taxes.

Tax-Loss Harvesting

The process mentioned above – which involves deducting capital losses from your capital gains to secure tax savings – is called tax-loss harvesting. It’s a common technique often used near the end of the calendar year to try and minimize an investor’s tax liability.

Tax-loss harvesting is also commonly used as a part of a tax-efficient investing strategy. It may be worth speaking with a financial professional to get a better idea of whether it’s a good strategy for your specific situation.

Recommended: Stock Market Basics

Taxes on Investment Income

You may face taxes related to your stock investments even when you don’t sell them. This holds true in the event that the investments generate income.

Dividends

You may receive periodic dividends from some of your stocks when the company you’ve invested in earns a profit. If the dividends you earn add up to a large amount, you may be required to pay taxes on those earnings.

Each year, you will receive a 1099-DIV tax form for each stock or investment from which you received dividends. These forms will help you determine how much in taxes you owe.

There are two broad categories of dividends: qualified or ordinary (nonqualified) dividends. The IRS taxes ordinary dividends at your regular income tax rate.

The tax rate for qualified dividends is the same as long-term capital gains: 0%, 15%, or 20%, depending on your filing status and taxable income. This rate is usually lower than the one for nonqualified dividends, though those with a higher income typically pay a higher tax rate on dividends.

Interest Income

This money can come from brokerage account interest or from bond/mutual fund interest, as two examples, and it is taxed at your ordinary income rate. Municipal bonds are an exception because they’re exempt from federal taxes and, if issued from your state, may be exempt from state taxes, as well.

Net Investment Income Tax (NIIT)

Also called the Medicare tax, this is a flat rate investment income tax of 3.8% for taxpayers whose adjusted gross income exceeds $200,000 for single filers or $250,000 for married filers filing jointly.

Taxpayers who qualify may owe interest on the following types of investment income, among others: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.

Recommended: Investment Tax Rules Every Investor Should Know

When Do You Not Have to Pay Taxes on Stocks?

Again, this is a discussion to have with your tax professional. But there are a few situations where you may not pay taxes when selling a stock.

For example, if you are investing through a tax-deferred retirement investment account like an IRA or a 401(k), you won’t have to pay taxes on any gains when trading stocks inside the account.

However, with all tax-deferred accounts, withdrawals after age 59 ½ are subject to ordinary income tax. Withdrawals prior to that age could incur a penalty, in addition to being taxed.

4 Strategies to Pay Lower Taxes on Stocks

Do you have to pay taxes on stocks? While you’ll typically be subject to tax on any gains you realize from selling shares, there are some strategies that may help lower your tax bill.

Buy and Hold

Holding on to stocks long enough for dividends to become qualified and for any capital gains tax to be in the long-term category because they are typically taxed at a lower rate.

Tax-Loss Harvesting

As discussed, utilizing a tax-loss harvesting strategy can help you with offsetting your capital gains with capital losses.

Use Tax-Advantaged Accounts

Putting your investments into retirement accounts or other tax-advantaged accounts may help lower your tax liabilities.

Refrain From Taking Early Withdrawals

Avoiding the temptation to make early withdrawals from your 401(k) or other retirement accounts.

Taxes for Other Investments

Here’s a short rundown of the types of taxes to be aware of in regards to investments outside of stocks.

Mutual Funds

Mutual funds come in all sorts of different types, and owning mutual fund shares may involve tax liabilities for dividend income, as well as capital gains. Ultimately, an investor’s tax liability will depend on the type and amount of distribution they receive from the mutual fund, and if or when they sell their shares.

In addition, if an investor holds mutual funds in a tax-deferred account, capital gains won’t be taxed.

Property

“Property” is a broad category, and can include assets like real estate as well as land. The IRS looks at property the same way, from a taxation standpoint. In short, profit from selling a property is subject to capital gains taxes (not to be confused with property taxes, which are paid separately). In effect, if you buy a house and later sell it for a profit, that gain could be subject to capital gains taxes (although there are exclusions on gains, up to certain amounts).

Options

Taxes on options trading can be confusing, and tax liabilities will depend on the type of options an investor has traded. But generally speaking, capital gains taxes apply to gains from options trading activity — it may be wise to consult with a financial professional for more details.

The Takeaway

For most investors, paying taxes on stocks involves paying capital gains taxes after they sell their holdings, or paying income tax on dividends. But it’s important to keep in mind that the tax implications of your investments will vary depending on the types of investments in your portfolio and the accounts you use, among other factors.

That’s why it may be worthwhile to work with an experienced accountant and a financial advisor who can help you understand and manage the complexities of different tax scenarios.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

How much tax do you pay on stocks?

How much an investor pays in taxes on profits from selling stocks depends on several factors, including any applicable capital gain, how long they held the stock, and whether they received any income from the stock, such as dividend distributions.

Do you get taxed when you sell stocks?

Yes, investors who sell stocks at a profit may generate a tax liability in the form of capital gains taxes. If the investor has generated a capital loss as the result of a sale, they can use the loss to offset tax liabilities generated by other capital gains.

How do you avoid taxes on stocks?

There are several strategies that investors can use to try and avoid or minimize taxes on stocks, including utilizing a buy-and-hold strategy and tax-advantaged accounts.