4.3% I Bond, 5.0% CD, 24% fed/5% state, 12 months
- I Bond effective ≈ 2.45% after 3-month penalty
- CD after-tax ≈ 3.61%
- CD higher
finance calculator
I Bond vs CD Calculator
Compare after-tax effective yields of I Bonds (state tax-free, 3-month penalty if redeemed <5 years) versus taxable CDs to see which pays more.
Results
- I Bond after-tax (state-free)
- 3.27%
- I Bond effective rate (after penalty)
- 2.45%
- Penalty months applied
- 3.00
- CD after-tax yield
- 3.61%
- Higher after-tax yield
- cd
How to use this calculator
- Enter I Bond composite rate and CD yield for similar terms.
- Enter federal and state tax rates.
- Enter months held to apply the I Bond early redemption penalty if <5 years.
- Review after-tax yields and which option is higher.
Inputs explained
- Composite rate
- Current posted I Bond rate (includes fixed + inflation components).
- Months held
- I Bonds redeemed before 5 years lose last 3 months’ interest.
- Tax rates
- I Bonds are exempt from state tax; CDs are fully taxable.
How it works
I Bond after-tax = composite rate × (1 − federal tax rate) since I Bonds are state tax-free.
If held <5 years, subtract 3 months of interest (or fewer if held <3 months) to get an effective rate.
CD after-tax = yield × (1 − federal − state + federal×state). We compare which after-tax yield is higher.
Formula
I Bond after-tax = I Bond rate × (1 − Fed tax) Penalty months = 3 if months < 60 (capped by months held) I Bond effective ≈ After-tax × (1 − Penalty months ÷ Months held) CD after-tax = CD yield × (1 − Fed − State + Fed×State)
When to use it
- Choosing between I Bonds and CDs for emergency/short-term savings.
- Comparing options in high state-tax brackets.
- Estimating the impact of the I Bond early redemption penalty for short holds.
Tips & cautions
- Hold I Bonds at least 5 years to avoid the 3-month penalty; for shorter horizons, compare carefully to CDs.
- In high state-tax states, I Bonds can outperform similar CDs after tax, even with lower headline rates.
- Match CD term to your expected holding period for a fair comparison.
- Assumes constant I Bond rate; actual composite rate resets every 6 months.
- Penalty modeled as simple months of interest; real returns depend on rate changes at resets.
- Ignores purchase limits and holding period rules beyond the 12-month lockout and 3-month penalty before year 5.
Worked examples
5.2% I Bond, 4.7% CD, 32% fed/0% state, 36 months
- I Bond effective ≈ 3.24%
- CD after-tax ≈ 3.20%
- I Bond higher
Deep dive
This I Bond vs CD calculator compares after-tax yields and accounts for the I Bond early redemption penalty to show which option pays more for your holding period.
Use it to decide between state tax-free I Bonds and taxable CDs, especially in high state-tax brackets or short horizons.
FAQs
- Are I Bonds state tax-free?
- Yes. They’re exempt from state/local income tax; federal tax applies when redeemed.
- Early redemption rules?
- You must hold 12 months minimum; if redeemed before 5 years, you forfeit the last 3 months of interest.
- Do I Bond rates change?
- Yes, every 6 months; this uses your input as a simple estimate.
- Taxes in tax-advantaged accounts?
- CDs in IRAs avoid current taxes; compare gross yields there. I Bonds are typically held in taxable accounts via TreasuryDirect.
- Education exclusion?
- Not modeled. Under certain conditions, I Bond interest can be excluded for education expenses.
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Estimates only. Actual I Bond rates reset and CD terms/penalties vary. Confirm rates, terms, and tax rules before investing.