What are I-bonds and how do they work?

I-bonds are savings bonds from the U.S. Treasury designed to protect against inflation. Their rate combines a fixed portion (set when you buy) with an inflation portion that adjusts every six months based on the Consumer Price Index, so your purchasing power keeps up with rising prices. You buy them at TreasuryDirect.gov, with a limit of $10,000 per person per calendar year (plus up to $5,000 via a federal tax refund). You must hold an I-bond at least 12 months, and if you cash out before 5 years you forfeit the last 3 months of interest. Interest is exempt from state and local tax, and federal tax is deferred until you cash out – sometimes tax-free if used for qualified education. I-bonds shine as a safe, inflation-protected place for medium-term savings you won't need within the first year.