I-Bonds vs. TIPS: Inflation-Protected Savings, Explained Simply
Both adjust with inflation. One is a savings bond with a $10k limit; the other is a Treasury you can buy in unlimited quantity. Here's how to choose.
What they have in common
Both Series I Savings Bonds (I-Bonds) and Treasury Inflation-Protected Securities (TIPS) are issued by the U.S. government and pay a return that adjusts with the Consumer Price Index (CPI).
What's different
| Feature | I-Bonds | TIPS |
|---|---|---|
| Purchase limit | $10,000/person/year (+$5k via tax refund) | No limit |
| Where to buy | TreasuryDirect.gov only | TreasuryDirect or any broker |
| Tax | Federal only (state-exempt); deferred until cashed | Federal only; interest taxed annually as it accrues |
| Liquidity | Hold 1 year minimum; 3-month interest penalty if cashed before 5 years | Trade like any bond; price moves with market |
| Best held in | Taxable account (tax deferral built in) | Tax-deferred account (IRA) to avoid annual phantom income tax |
When I-Bonds are the right call
- You have less than $10k to deploy this year for inflation protection.
- You want a safe, set-it-and-forget-it way to preserve purchasing power.
- You want the tax deferral (you don't pay tax until you cash them).
When TIPS are the right call
- You have more than $10k to deploy.
- You're investing inside a traditional IRA where the annual tax isn't an issue.
- You want flexibility to sell before maturity.
Today's yields
The composite I-Bond rate resets every May and November. As of the latest reset, it's around 4.28% (made of a fixed rate plus the inflation adjustment). 5-year TIPS are yielding about 2.0% real (above inflation), so a 5-year breakeven inflation rate near 2.3%.
If you think inflation will be above 2.3% on average, TIPS beat regular Treasuries. If you think it'll be below, regular Treasuries win.
The retiree case for both
Inflation is the silent threat to a retirement nest egg — a steady 3% inflation cuts your purchasing power in half over 24 years. Carving out 10–20% of fixed-income holdings for I-Bonds and/or TIPS gives you a built-in inflation buffer that doesn't depend on stock returns.
Bottom line
I-Bonds for the first $10k/year per spouse; TIPS for anything beyond that, held in an IRA. Together they form a quiet, inflation-proof anchor in a retirement portfolio.