CDs vs. I Bonds: What's the Better Place for Your Cash?

Series I Savings Bonds, or I bonds, became extremely popular a couple of years ago when inflation spiked to a multi-decade high. However, inflation has cooled off, and the interest rates paid by these inflation-protected instruments have as well. I bonds issued from November through April 2025 have an initial yield of 3.11%, down from 4.28% previously and 5.27% a year ago.

With CDs that yield 4% or more still readily available, are I bonds appealing anymore? It isn't a simple answer, and here's what you need to know.

Do you want to lock in today's high interest rates before the Federal Reserve cuts rates any further? Click here for our up-to-date list of the best CD rates right now.

CD rates are higher right now

Here's one key point to keep in mind. CD rates tend to be highest in a high-rate environment, and I bond rates tend to be highest in a high-inflation environment. And those don't always happen at the same time.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

Right now, even though the Federal Reserve has started to lower its benchmark interest rate, we're still in a relatively high-rate environment. In fact, the benchmark federal funds rate is still significantly higher than the peak of the previous rate-hike cycle in 2019. However, inflation has clearly gravitated toward the Fed's 2% goal.

Because of this, it's possible to get a significantly higher interest rate from a CD than the current 3.11% yield from I bonds. As of this writing, you can find 1-year CDs with yields greater than 4%, and 5-year CDs that pay 3.5% or more.

However, it isn't just a question of interest rates. There are some pros and cons of both types of interest-bearing instruments to keep in mind.

Flexibility is an advantage for CDs

In addition to the interest rates, another advantage for CDs is flexibility. While it's true that CDs are generally not flexible when compared to savings and money market accounts, they are far more flexible than I bonds, at least at first.

CDs have set terms (one year, two years, etc.), but if you need to get your money back early, you can. The worst-case scenario is that you'll pay a penalty equal to a few months' worth of interest.

On the other hand, I bonds cannot be cashed in at all for the first year, and if you cash them in within five years, you'll get hit with a penalty.

Another key advantage for CDs that's important to mention is deposit flexibility. Specifically, you can put as much money as you want into a CD. If you have $1 million in savings and want to open a 1-year CD with it, you can. On the other hand, individuals can only put $10,000 into I bonds per year.

I bonds could work as a long-term hedge

Sure, I bonds only pay 3.11% right now. But that isn't necessarily going to be the case a year from now, two years from now, and so on.

If you aren't familiar with how they work, I bond interest rates have two parts -- a fixed rate that stays the same for as long as the bond exists, and an inflation adjustment. Today's 3.11% rate consists of a 1.2% fixed rate and 1.9% inflation adjustment (it doesn't add exactly due to compounding mathematics).

Here's one thing to keep in mind. The 1.2% fixed rate is historically high for an I bond. In fact, the fixed component was 0% for much of the past several years. Buying I bonds now locks this in. If inflation were to spike to say, 5%, the inflation adjustment would be added to the fixed rate you've locked in.

Consider this real-world example. In mid-2022 when inflation reached a 40-year high, I bonds were issued with a 0% fixed rate and a 9.62% inflation adjustment. If you were to buy an I bond today and inflation were to spike to 2022 levels again, your I bond would pay nearly 11%.

To be perfectly clear, I bonds aren't the best income investments. They are best suited to be an income-bearing insurance policy that protects your purchasing power if inflation is elevated.

The bottom line

Like most personal finance topics, there isn't a perfect choice here. It depends on your income expectations, long-term financial goals, and other factors. If you're looking for a steady income stream and want to lock in today's interest rates, CDs are the clear winner. On the other hand, if you want to protect yourself in the event inflation unexpectedly spikes, I bonds can be a great choice even though they have lower yields right now.