I needed a tea cosy to keep my tea hot for my new Ikea RIKLIG teapot, so here it is, just as I did it:
Cast on 77 stitches, join to work in the round. Place marker. K2, P2 for 76 stitches and finish with 1 P.
Knit three rounds – at the end of the third round cast off 3 purl stitches.
Slipping each first stitch Knit back and forth in rib until the piece measures 7.5cm/ 2 inches.
Rib 34, turn, cast on 3 and join, continuing to work on the inside of the piece. Rib 34, turn, rib 34, p3, rib all the way around. Cast off.
Pick up and knit a stitch from the bottom of the handle opening. Cast on two more and knit i-cord, attaching to the side of the opening by knitting on the i-cord each row. At two points on the edge, skip a join to leave a small gap - knit i-cord only. Finish to the tip of the join, k2 tog, cast off one, close off and sew in the end.
Sew on two tiny buttons to match the i-cord gaps.

Note: I used 3.25 needles but I knit loosely: 4mm or bigger may be more likely.
I wish I had started the short rows a round or two sooner and done four instead of two.