Inflation-Linked Bonds COI and EDO – A Complete Guide

Inflation-indexed bonds are among the most popular savings instruments in Poland. During the period of high inflation in 2022–2023, Poles purchased them in record amounts, seeking a safe way to protect their money. In this guide, we explain exactly how COI and EDO bonds work, how to buy them, how much you can earn, and what their limitations are.

What Are Inflation-Indexed Bonds?

Inflation-indexed bonds are a type of government bond (issued by the State Treasury – Skarb Państwa) whose interest rate is directly linked to the CPI inflation index published by the Central Statistical Office (GUS). This means the higher the inflation, the higher the interest you receive – helping your savings maintain their real value.

The Ministry of Finance offers two main types of inflation-indexed bonds:

• COI – Czteroletnie Oszczędnościowe Indeksowane (4-Year Savings Indexed)
• EDO – Emerytalne Dziesięcioletnie Oszczędnościowe (10-Year Retirement Savings)

Both types are available to individuals and purchased directly from the State Treasury, without stock exchange intermediation.

COI Bonds – Detailed Description

Key Parameters

• Maturity: 4 years
• Face value: PLN 100 per bond
• Minimum purchase: 1 bond (PLN 100)
• First-year interest rate: Fixed, set for each issuance (e.g. 6.75% in 2024 issuances)
• Interest rate in years 2–4: Margin + annual CPI inflation
• Margin: Typically 1.00–1.75 percentage points
• Interest capitalisation: Annual
• Interest payout: At redemption (after 4 years)

How Is COI Interest Calculated?

In the first year, the interest rate is fixed and known upfront. In the following three years, the rate is calculated as:

Interest rate = margin + CPI inflation over the last 12 months

The CPI inflation figure used is the annual index published by GUS, applicable in the month preceding the start of a new interest period.

Example: COI Returns Calculation

Suppose you buy COI bonds worth PLN 10,000 (100 bonds) with these parameters:

• Year 1: fixed rate 6.75%
• Margin: 1.25%
• CPI inflation: year 2 – 5%, year 3 – 3.5%, year 4 – 2.5%

Year 1: PLN 10,000 × 6.75% = PLN 675 interest (before tax) Value after year 1: PLN 10,675

Year 2: Rate = 1.25% + 5% = 6.25% PLN 10,675 × 6.25% = PLN 667.19 interest Value after year 2: PLN 11,342.19

Year 3: Rate = 1.25% + 3.5% = 4.75% PLN 11,342.19 × 4.75% = PLN 538.75 interest Value after year 3: PLN 11,880.94

Year 4: Rate = 1.25% + 2.5% = 3.75% PLN 11,880.94 × 3.75% = PLN 445.54 interest Value after year 4: PLN 12,326.48

Total gross profit: PLN 2,326.48 Tax (19%): PLN 442.03 Total net profit: PLN 1,884.45 Effective net annual return: approximately 4.6%

EDO Bonds – Detailed Description

Key Parameters

• Maturity: 10 years
• Face value: PLN 100 per bond
• Minimum purchase: 1 bond (PLN 100)
• First-year interest rate: Fixed, set at issuance (e.g. 7.25% in 2024 issuances)
• Interest rate in years 2–10: Margin + annual CPI inflation
• Margin: Typically 1.50–2.00 percentage points (higher than COI)
• Interest capitalisation: Annual
• Interest payout: At redemption (after 10 years)

Why Does EDO Offer a Higher Margin Than COI?

The higher margin on EDO bonds is a premium for the longer period during which your money is locked up. 10 years is a significantly longer horizon than 4 years, so the investor bears greater liquidity risk. The Ministry of Finance compensates for this with a higher margin above inflation.

EDO and IKE (Individual Retirement Account)

EDO bonds can be purchased through an Individual Retirement Account (IKE-Obligacje). This is a particularly attractive option because profits from bonds held in an IKE are exempt from capital gains tax (19%), provided you withdraw the funds after reaching age 60 (or 55 if you have acquired pension rights).

Tax benefit: With a PLN 10,000 investment and total gross profit of approximately PLN 6,000 over 10 years, the tax saving exceeds PLN 1,100.

How to Buy COI and EDO Bonds

Step 1: Open an Account at obligacjeskarbowe.pl

Registration requires:

• PESEL number (Polish national ID number)
• Identity document
• Bank account (for withdrawals)

You can also open an account at selected PKO BP branches or through the IKO app.

Step 2: Fund Your Account

Transfer funds to your sub-account in the government bonds system. The money should be credited within 1–2 business days.

Step 3: Place a Purchase Order

New bond issuances are available every month. You can buy bonds:

• Through the obligacjeskarbowe.pl website
• Through the mobile app
• At a PKO BP branch
• By telephone

Step 4: Confirmation

After purchase, you receive a transaction confirmation. The bonds are recorded in your account.

Early Redemption – What You Need to Know

Both COI and EDO can be redeemed before maturity, but this involves a fee.

Early Redemption Fee

• COI: Typically PLN 0.70 per bond (0.7% of face value)
• EDO: Typically PLN 2.00 per bond (2% of face value)

When Might Early Redemption Make Sense?

• Sudden need for cash (emergency situation)
• Appearance of a significantly more attractive investment opportunity
• Change in life circumstances requiring access to capital

When Is It Better to Wait?

In most cases. The early redemption fee reduces your profit, and the greatest benefit of inflation-indexed bonds emerges over the long term, particularly with variable inflation.

COI vs EDO – Which Bond Is Better?

It depends on your situation and goals:

Choose COI if:

• You want access to your money in 4 years
• You are uncertain about your financial situation in the longer term
• You want to test inflation-indexed bonds before a longer commitment
• You prefer a lower fee for potential early redemption

Choose EDO if:

• You are saving for retirement or a goal 10+ years away
• You want to maximise the margin above inflation
• You plan to use IKE-Obligacje (tax exemption)
• You do not need this money in the foreseeable future

Combined Strategy

Many experienced investors combine both types:

• COI for medium-term goals (car purchase, renovation, travel)
• EDO on IKE for retirement

Inflation-Indexed Bonds vs Other Instruments

COI/EDO vs Bank Deposits

• Deposits have a fixed interest rate that does not adjust to inflation
• COI/EDO automatically adjust their rate to the inflation level
• During periods of rising inflation, indexed bonds significantly outperform deposits
• Deposits have an advantage in liquidity (easier exit) and BFG protection up to EUR 100,000

COI/EDO vs Fixed-Coupon Bonds

• Fixed-coupon bonds (e.g. TOS, DOS) offer predictable interest
• In conditions of rising inflation, indexed bonds deliver higher returns
• In conditions of falling inflation, fixed-coupon bonds may be more advantageous

COI/EDO vs Equity ETFs

• ETFs offer potentially higher returns but with much higher risk
• Indexed bonds guarantee a real return above inflation (the margin)
• Ideally, combine both in a diversified portfolio

Limits and Constraints

Purchase Limit

There is no formal limit on the amount you can spend on government bonds in a single issuance. However, for very large amounts (millions of PLN) there may be practical constraints.

Risk

Government bonds are considered among the safest investments – the risk is essentially the solvency of the Polish state. In practice, the risk of default is minimal.

Tax

Bond interest is subject to capital gains tax at 19% (the so-called "podatek Belki"). The exception is bonds held in an IKE – there, profits are tax-exempt when conditions are met.

Zero or Negative Inflation

If inflation falls to zero or negative levels, the interest rate on bonds in that interest period will equal the margin alone (e.g. 1.25% for COI). The nominal value of the bonds cannot fall below face value.

Practical Tips

Buy Regularly

Instead of one large investment, consider regular monthly purchases. Each monthly issuance has slightly different terms, and regular purchases give you diversification by issuance date.

Keep Records

Note purchase dates, issuance parameters, and maturity dates. With multiple bond series, it is easy to lose track. Personal finance tools such as Freenance can help you track your entire investment portfolio.

Consider a Bond Ladder

Buy bonds with different maturity dates so you have regular redemption windows. For example, buy COI every year, and after 4 years a new series matures every year.

Check Each Issuance's Terms

The margin and first-year interest rate can vary between issuances. The Ministry of Finance publishes the terms on obligacjeskarbowe.pl before each issuance.

History of Inflation-Indexed Bonds in Poland

The 2022–2023 Boom

During Poland's record-high inflation period, Poles bought indexed bonds en masse. Government bond sales broke records – in some months, the State Treasury sold bonds worth over PLN 10 billion. Most of this went to COI and EDO.

Changes in Terms

The Ministry of Finance has repeatedly changed bond terms:

• Raising margins during periods of high inflation (to attract investors)
• Changes to early redemption fees
• Introduction of new bond types

Lessons from the Past

History shows that inflation-indexed bonds work best as an element of a diversified portfolio, not as the only investment. Although they protect against inflation, their real rate of return (margin above inflation) is relatively low.

Frequently Asked Questions (FAQ)

Are COI and EDO Bonds Safe?

Yes – they are guaranteed by the State Treasury, meaning the risk of capital loss is minimal. They are one of the safest places for savings in Poland.

Can I Buy Bonds for a Child?

Yes – bonds can be purchased on behalf of a minor. A visit to a sales point with the child's documents is required.

What Happens if Inflation Is Negative?

The interest rate in a given interest period will not fall below the margin level itself. The nominal value of the bonds is protected.

Are Inflation-Indexed Bonds a Good Investment for IKE?

Yes, particularly EDO on IKE is a very attractive option due to the tax exemption. It is one of the best retirement saving options for people who prefer low risk.

How Many Bonds Can I Buy?

There is no upper limit, but remember diversification – do not put all your savings into a single instrument.

Summary

COI and EDO bonds are among the best tools for protecting savings from inflation available to the individual Polish investor. Their key advantages are:

• Safety – State Treasury guarantee
• Inflation protection – interest rate automatically rises with inflation
• Real profit – the margin above inflation ensures growth in purchasing power
• Accessibility – minimum purchase is just PLN 100
• Tax benefits – possibility of using IKE (EDO)

At the same time, remember the limitations – low liquidity, early redemption fees, and a relatively low real rate of return. They work best as the foundation of a savings portfolio, supplemented by other asset classes.