I-bonds vs TIPS yield calculator

I-bonds vs TIPS — both inflation-protected, very different vehicles

Both Treasury products hedge inflation, but the structural differences flip the answer depending on holding period and tax bracket.

I-bonds (Series I Savings Bonds)

• Composite rate = fixed rate + inflation rate, reset every 6 months
• Fixed rate: locked at purchase, stays for life of bond (recent: 1.2-1.3%)
• Inflation rate: half of CPI-U over preceding 6 months, applied semi-annually
• Cap: $10,000/year per individual, $5,000 in tax refund I-bonds
• Liquidity: 1-year hold required, 3-month interest penalty if cashed before 5 years
• Tax: federal tax deferred until redemption, no state tax

TIPS (Treasury Inflation-Protected Securities)

• Real yield: market-determined, locked at purchase
• Inflation adjustment: principal adjusted by CPI semi-annually
• No purchase cap: buy any amount at auction or secondary market
• Liquid: trade like any Treasury bond
• Tax: federal tax owed annually on inflation accrual ("phantom income"), no state tax

When I-bonds win

• Tax deferral matters — high earners benefit from pushing tax to retirement (lower bracket)
• Modest amounts — $10k/year/person cap doesn't bind
• Long holding period — compound deferral grows the gap
• Avoid phantom income — TIPS phantom income is paid in cash you don't receive

When TIPS win

• Large allocation — I-bond cap is too restrictive
• Mid-life liquidity needed — TIPS trade freely
• Higher real yield environment — when TIPS real yield > I-bond fixed rate by enough to offset tax drag (currently the case)
• Tax-advantaged account — phantom income disappears in IRA/401k, eliminates the I-bond's main advantage

Current snapshot

When TIPS real yield is >1.5% above I-bond fixed rate, TIPS in a tax-advantaged account beat I-bonds for most allocations. When the gap is <0.5% and you're maxing contributions, I-bonds in taxable accounts edge out.