Are I Bonds taxed by states?

No. I Bond interest is exempt from state and local tax; it’s taxable federally.

Can I redeem I Bonds anytime?

They’re locked for 12 months; redeeming in years 1–5 forfeits the last 3 months of interest.

Do CDs have early withdrawal penalties?

Often yes for bank CDs; brokered CDs can be sold in a secondary market but may lose value if rates rise.

Does this model rate changes?

No. It’s a single-year snapshot. I Bond variable rate resets; CD rates are typically fixed for the term.

What about education tax exclusion for I Bonds?

Not included. This is a general after-tax comparison; special exclusions depend on eligibility rules.

finance calculator

I Bond vs CD After-Tax Calculator

Compare after-tax yields of Series I savings bonds vs CDs with federal/state tax differences.

Results

I Bond after-tax APY (%): 342.00%
CD after-tax APY (%): 355.00%
I Bond minus CD (percentage points): -13.00%

How to use this calculator

Enter I Bond composite rate (current posting).
Enter CD APY.
Enter your federal and state tax rates.
Review after-tax yields and the advantage (positive favors I Bonds; negative favors CDs).

Inputs explained

I Bond rate: Composite I Bond rate (fixed + variable). Adjust as rates change.
CD APY: Annual percentage yield for the CD you’re comparing.
Federal/State rates: Marginal rates for interest income. I Bonds exempt state/local; CDs are fully taxable.

How it works

I Bonds: taxed federally, exempt from state/local → after-tax = I Bond rate × (1 − federal rate).

CDs: taxed federal + state → after-tax = CD APY × (1 − federal − state).

Difference = I Bond after-tax APY − CD after-tax APY.

Formula

I Bond after-tax = I Bond rate × (1 − Federal rate)
CD after-tax = CD APY × (1 − Federal − State)
Advantage = I Bond after-tax − CD after-tax

When to use it

Choosing between I Bonds and a high-yield CD based on after-tax return.
Accounting for state-tax exemption on I Bonds versus fully taxable CD interest.
Quick check before locking funds in a CD or buying I Bonds up to the annual limit.

Tips & cautions

I Bonds have purchase limits and a 1-year lock, with 3-month interest penalty if redeemed in the first 5 years.
CDs may offer liquidity via brokered markets or penalties for early withdrawal—factor liquidity into your decision.
Adjust rates as they change; I Bond variable rate updates every six months.
Simplified: assumes full year at stated rates; does not model penalties, lockups, or rate resets over time.
Does not include special tax treatments (e.g., education exclusion for I Bonds) or AMT nuances.
State/local rules vary; this assumes CDs are fully taxable at your state rate.

Worked examples

I Bond 4.5%, CD 5.0%, 24% fed, 5% state

I Bond after-tax = 4.5% × 0.76 = 3.42%
CD after-tax = 5.0% × 0.71 = 3.55%
Advantage ≈ −0.13 pts (CD slightly higher)

I Bond 5.3%, CD 4.8%, 22% fed, 6% state

I Bond after-tax ≈ 4.13%
CD after-tax ≈ 4.8% × 0.72 = 3.46%
Advantage ≈ +0.67 pts (I Bond higher)

Deep dive

Compare I Bonds vs CDs after taxes by entering rates and your federal/state tax to see which yields more net.

Use it to factor in I Bond state-tax exemption and CD full taxation before choosing where to park cash.

FAQs

Are I Bonds taxed by states?: No. I Bond interest is exempt from state and local tax; it’s taxable federally.
Can I redeem I Bonds anytime?: They’re locked for 12 months; redeeming in years 1–5 forfeits the last 3 months of interest.
Do CDs have early withdrawal penalties?: Often yes for bank CDs; brokered CDs can be sold in a secondary market but may lose value if rates rise.
Does this model rate changes?: No. It’s a single-year snapshot. I Bond variable rate resets; CD rates are typically fixed for the term.
What about education tax exclusion for I Bonds?: Not included. This is a general after-tax comparison; special exclusions depend on eligibility rules.

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Simplified after-tax comparison only. Does not model rate changes, penalties, or special tax treatments. Consult tax/financial guidance before investing.