It's a heavyweight prize fight today, with two popular fixed-income options going head-to-head. We'll compare across all the major considerations and end with a visual calculator to help understand the trade-offs.
Disclaimer: it's no secret that the crew here at YourTreasuryDirect loves I Bonds, and that we think they are a great asset to hold for the long term. So it's possible we might be biased. That said, we tried to be as impartial as possible in this comparison guide to help folks find the right answer for their financial journey. Every situation is unique, and (taps sign) this is for informational purposes only and should not be considered financial advice.
Below are 7 key factors to think about when comparing I Bonds with Bank CDs, plus a custom calculator to show how inflation and tax assumptions effect the Real Return of each investment.
Grab a cup of tea, and let's dive in.
Are there any big purchases on the horizon that you might need cash for, such as a house down payment or a car? While CDs and I Bonds are both generally for folks who are able to lock up funds for the short-to-medium term, CDs come in duration as short as 1 month - whereas I Bonds must be held for at least 1 year.
With both CDs and I Bonds, there are some situations where you can cash out earlier than the maturity date, but you'll likely pay a penalty which will cut into your real yield. For CDs, this is usually a few months of interest. For I Bonds, this is 3 months of interest if you cash out before 5 years, and no penalty after 5 years.
CD rates are much more straightforward and predictable than I Bonds rates. For most standard CDs, you know exactly what rate you're getting for the duration of the CD at time of purchase.
I Bond rates (see the latest here) are a bit more complicated, as they adjust every 6 months based on inflation. This makes them less predictable in terms of a nominal rate, but more predictable in terms of real rate (rate adjusted for inflation).
If you bought an I Bond today (February 27, 2024) you would get a fixed rate of 1.3%, and for the first 6 months you'd have a semi-annual inflation of 1.97%, giving an initial nominal rate for the first 6 months of 5.27%.
Try moving the sliders below to see the effect on I Bond rates.
Semi-Annual Inflation Rate
|I Bond Rate
|Best CD Rate**
|National Avg CD Rate**
Overall we think it's kind of a wash, but your opinion may differ.
I Bonds: minimum of $25, maximum of $10,000 / year per person [source ].
CD: Many CDs have no minimum, but most offer higher rates for largest amounts. There is no strict limit on the maximum amount of money you can invest in CDs, but keep in mind that your deposits are FDIC insured only up to $250,000 per institution. If you are investing more than that, you may want to consider spreading your money across multiple banks [source].
Honestly, both CDs and I Bonds are considered very safe investments and good for folks with low risk tolerance.
CDs issued by FDIC-insured banks are covered up to $250,000 per depositor, per bank. This means that even if the bank were to fail, the FDIC would cover your CD investment up to the insured limit.
CDs issued by credit unions may be insured by the National Credit Union Administration (NCUA), which similarly provides coverage up to $250,000 per member, per credit union.
Even though your deposits are insured, you probably want to avoid the hassle and stress of a bank failure. So it's generally recommended to still look at bank health and ratings before investing. It's tricky, because the banks that are paying the top CD rates are usually the banks most desperate for cash and thus perhaps most at risk for liquidity issues. By only taking out CDs in healthy banks, you're also doing your part to fight moral hazard.
I Bonds are backed by the full faith and credit of the U.S. government. Even with the recent credit downgrade, this is about as safe as it gets. If the US defaults on paying out its I Bond obligations, things have significantly deteriorated and it's unlikely the FDIC/NCUA are in a great position either. If you're worried about this scenario, we recommend spending more time on water filtration and canned food.
No one really knows whether inflation is going up, down, or sideways. That said, if you hold opinions here that should have a big effect on the CD vs. I Bond comparison. Simply put, if you think inflation is going up, I Bonds are a better choice because they will adjust automatically to preserve the real return. If you think inflation is going down, CDs are a better choice because you can lock in a higher nominal rate now.
The I Bond inflation adjustment should comfort you in proportion to your trust in the reported CPI-U (e.g. here). It's generally a trusted metric of cost-of-living changes but there are those who think it might not always be accurate.
CD Rate (APY)
Federal Income Tax
State Income Tax
Local Income Tax
As derived from: