I Bonds vs. TIPS: Two Ways Treasury Protects Against Inflation

Inflation is the quiet enemy of a fixed-income investor. A bond paying a fixed 4% looks fine until prices rise 5% and the real return turns negative. Treasury sells two products built to address this: Series I savings bonds and Treasury Inflation-Protected Securities (TIPS). This is Part 5 of our Bonds, Explained series.

I bonds

Investor.gov describes Series I bonds as offering a fixed rate of interest, adjusted for inflation. The rate has two parts: a fixed rate that stays the same for the life of the bond, and an inflation rate that is reset every six months. The two combine into a composite rate.

• Purchase limit. Investor.gov says you can buy up to $10,000 (face value) of Series I bonds in any calendar year.
• Holding period. Per the Treasury's Fiscal Data site, a savings bond can be redeemed any time after at least one year. If redeemed before five years, you lose the last three months of interest.
• Taxes. Interest is exempt from state and local income taxes. For federal tax, the IRS says you can elect to include the interest in income each year, or generally wait until the bond matures or is redeemed.
• No market price. I bonds are redeemed with the Treasury rather than sold in the open market, so there's no price decline from rising rates.

The rate changes every six months, so check TreasuryDirect.gov for the current one. According to the headline of TreasuryDirect's May 1, 2026 announcement, Series I bonds issued from that date carry a 4.26% composite rate. The rate resets every six months, with the next reset expected to take effect November 1. Verify the current figures at the source before buying.

TIPS

FINRA describes TIPS as fixed-interest securities issued with maturities of five, 10, and 30 years. Their principal is adjusted for inflation based on changes in the Consumer Price Index for All Urban Consumers (CPI-U). The coupon rate stays fixed, but it's paid on the adjusted principal, so interest payments rise when inflation does. At maturity, if the adjusted principal is greater than the original face value, you receive the greater amount.

I bonds vs. TIPS at a glance

TIPS have their own tax treatment. FINRA says the tax rules that apply to bonds are complicated and points readers to IRS Publication 550, so check that publication or a tax professional before you buy.

Common questions

What's the difference between I bonds and TIPS?

Both adjust for inflation. I bonds pay a composite rate with an inflation component reset every six months, have a $10,000 annual purchase limit, and can't be sold in the market. TIPS adjust their principal with CPI-U and trade in the market, so their price can rise and fall.

Can you lose money on TIPS?

Yes, if you sell before maturity after rates have risen. FINRA notes every bond carries interest rate risk. At maturity, if the inflation-adjusted principal is greater than the original face value, you receive the greater amount, per FINRA.

How long do you have to hold an I bond?

At least one year. If you redeem before five years, you lose the last three months of interest, according to the Treasury's Fiscal Data site.