I bonds and TIPS are the two ways to lend to the US government and have inflation added to what you earn. Both track the CPI-U and both carry the government's full faith and credit, but they are built for different savers. TIPS paid a higher real return in late October 2026 and take any amount; I bonds are capped at $10,000 a year but never drop in value and let you postpone tax. Below are a side-by-side table, five-year scenarios for deflation and for low and high inflation, an early-exit test, the tax math and a decision table. For the rest of the government securities menu, see the Treasuries hub.
What is the main difference between I bonds and TIPS?
I bonds are non-marketable savings bonds whose value only rises, while TIPS are tradable securities whose price moves with real interest rates.
An I bond earns a composite rate: a fixed rate set when you buy, plus an inflation rate that Treasury resets every six months from the change in the CPI-U. Its value is set by formula, so you can redeem it at the Treasury for a known amount once the first year is over. The I bonds guide shows the formula in full.
A TIPS pays a fixed coupon on a principal that is adjusted daily for inflation, with a three-month lag. Its real yield is set at auction and locked in only if you hold to maturity. In between, the price moves with real yields like any other bond. The TIPS guide covers the index ratio, coupons and breakeven inflation.
The real return gap is large right now. I bonds bought from November 1, 2026 to April 30, 2027 carry a 1.40% fixed rate. On October 30, 2026 TIPS real yields were 2.25% for 5 years, 2.60% for 10 years and 3.08% for 30 years.
How do I bonds and TIPS compare side by side?
The table sets the two against each other on the features that usually decide the choice, using rates available in early November 2026.
| Feature | I bonds | TIPS |
|---|---|---|
| Real return | 1.40% fixed rate on bonds issued November 2026 to April 2027, for up to 30 years | 2.25% (5-year), 2.60% (10-year) and 3.08% (30-year) on October 30, 2026, if held to maturity |
| How inflation is added | New rate every six months from the six-month CPI-U change | Principal adjusted daily by an index ratio, with a three-month lag |
| Term | Earns for 30 years; can be cashed after 12 months | 5, 10 or 30 years |
| Purchase limit | $10,000 per Social Security number per calendar year | Up to $10 million per auction, noncompetitive; no yearly cap |
| Minimum | $25, then any amount to the penny | $100, in $100 steps |
| Getting money out early | Not possible in year one; after that, redeem at a set value, losing 3 months of interest before year 5 | Sell any business day at the market price |
| Can the value fall? | No | Yes, before maturity; original par is repaid at maturity at minimum |
| Federal tax | Deferred until you cash the bond or it matures, or yearly by choice | Due every year on coupons and on inflation added to principal |
| State and local tax | Exempt | Exempt |
| Where to buy | TreasuryDirect only | TreasuryDirect at auction, brokers, TIPS funds |
Two rows deserve a closer look. TIPS bought in TreasuryDirect must stay there for 45 calendar days before they can move to a broker for sale, so the any-day exit applies to TIPS held at a broker. And I bonds can also earn tax-free interest under the higher-education exclusion, which does not apply to TIPS.
Which earns more when inflation is high or low?
Held five years under the same steady inflation, a 5-year TIPS at a 2.25% real yield beats an I bond at 1.40% in every case.
The scenarios assume $10,000 in each, the same inflation rate every year for both, an I bond with a 1.40% fixed rate and a TIPS bought at par with a 2.25% coupon whose coupons are reinvested at the same rate. Figures are before tax. To isolate the design differences, the table ignores the 5.51% a November 2026 I bond earns in its first six months and the TIPS's three-month CPI lag.
| Average inflation for 5 years | I bond value | TIPS value | TIPS ahead by |
|---|---|---|---|
| −1% (deflation) | $10,197 | $11,126 | $929 |
| 0% | $10,722 | $11,184 | $462 |
| 1% | $11,269 | $11,754 | $485 |
| 2.46% (5-year breakeven on October 30, 2026) | $12,108 | $12,629 | $521 |
| 3.74% (CPI-U, 12 months to September 2026) | $12,883 | $13,437 | $554 |
| 6% | $14,349 | $14,966 | $617 |
Worked example: Why the gap barely changes with inflation
Both products pass inflation through almost one for one, so what separates them is the real rate.
- I bond growth in purchasing power over 5 years: 1.007 to the 10th power = 1.0722, or 7.2%
- TIPS growth in purchasing power: 1.01125 to the 10th power = 1.1184, or 11.8%
- At 3.74% inflation both values are multiplied by about 1.20, which is why the dollar gap grows only from $462 to $554
- In deflation the TIPS principal would shrink to $9,510, but maturity repays $10,000, while the I bond's composite stays positive at about 0.39% because the 1.40% fixed rate outweighs a 1% fall in prices
The real-rate gap will not always favor TIPS. In periods when TIPS real yields were below zero, even the I bond's 0.00% fixed rate was the higher of the two. The comparison has to be rerun whenever either rate changes.
What if you need the money before maturity?
An early I bond exit costs three months of interest, while a TIPS sale depends on how real yields have moved since you bought.
Take $10,000 in each, 3% steady inflation and a sale or redemption after exactly two years. The TIPS has three years left, so a one-point move in real yields changes its price by about 2.9%.
| Two years in, real yields have... | I bond, cashed at 24 months | 5-year TIPS, sold after 2 years |
|---|---|---|
| Stayed the same | $10,791 | $11,076 |
| Risen 1 point | $10,791 | $10,775 |
| Fallen 1 point | $10,791 | $11,387 |
The I bond figure is 21 months of interest at a 4.42% composite, because the last three months are forfeited. The TIPS figure is the sale price on an inflation-adjusted principal of about $10,609 plus $467 of coupons received, before commissions and bid-ask spreads. A 10-year TIPS, with eight years left at that point, would swing more than twice as far, and in the first 12 months only the TIPS can be sold at all. The guide to selling Treasuries before maturity explains how a sale works.
How do taxes change the comparison?
Taxes favor I bonds in taxable accounts, because I bond interest can wait until redemption while TIPS owners owe tax on inflation adjustments every year.
Repeating the five-year scenarios at a 24% federal rate, with TIPS tax paid each year out of the coupons and I bond tax paid at the end:
| Average inflation for 5 years | I bond after tax | TIPS after tax | TIPS ahead by |
|---|---|---|---|
| 1% | $10,965 | $11,324 | $359 |
| 3.74% | $12,191 | $12,544 | $353 |
| 6% | $13,305 | $13,616 | $311 |
High inflation hurts the TIPS owner most. At 6% inflation, $10,000 of TIPS adds about $600 of taxable principal in the first year on top of about $232 of coupons, a federal bill of about $200 against $232 of cash received. The I bond owner reports nothing until redemption and can choose the year to cash in.
Three rules can tilt the result further:
- Retirement accounts. TIPS can be held in an IRA or 401(k) through a brokerage account, which removes the yearly tax on inflation adjustments; I bonds are held in TreasuryDirect, outside any retirement account. The guide to Treasuries in an IRA covers the trade-offs.
- Education exclusion. I bond interest used for qualified tuition can be partly or fully tax-free for owners under the income limits.
- State and local tax. Neither is taxed by states or cities, so this does not separate them; it does separate both from bank deposits, as the T-bill tax guide explains.
Tax rules change, so run your own figures with a tax professional.
How does deflation protection differ?
I bonds protect every six-month period, because the composite rate cannot fall below zero, while TIPS protect only the original principal, and only at maturity.
An I bond's value never declines from one month to the next. In a deflationary stretch the worst case is a 0.00% rate for six months, which last happened to many bonds in 2015.
A TIPS has no such floor along the way. Its principal and coupons fall with prices, and the guarantee of at least the original par applies only on the maturity date. That matters most for older TIPS bought in the market:
Worked example: Deflation on a TIPS bought with a high index ratio
- $10,000 of par in a TIPS whose index ratio is already 1.25 has an adjusted principal of $12,500
- Five years of 1% deflation: $12,500 × 0.99 to the 5th power = $11,887
- The par floor of $10,000 never comes into play, so $613 of principal value is gone
- A newly issued TIPS, starting near an index ratio of 1.0, would be rescued by the floor in the same scenario
Which one fits which situation?
The choice usually comes down to how much you are investing, how soon you might need it and whether it sits in a taxable account.
| Your situation | Feature that matters | Tends to favor |
|---|---|---|
| Money might be needed in one to five years | No price risk and a known exit cost | I bonds |
| More than $10,000 per person to invest this year | No yearly purchase cap | TIPS |
| Investing inside an IRA or 401(k) | No yearly tax on inflation adjustments there | TIPS |
| Taxable account, long holding period, high bracket | Federal tax deferred until redemption | I bonds |
| Locking in today's real yield for a set term | 2.25% to 3.08% real yields on October 30, 2026 | TIPS |
| Saving for tuition | Higher-education exclusion | I bonds |
| Might need the money within 12 months | Can be sold at any time | TIPS, with price risk |
The two are not exclusive: a household can use I bonds up to the limit and TIPS for larger sums. Savers comparing either one with ordinary bills can turn to I bonds vs T-bills and the live T-bill rates page. To project a balance at an assumed real rate, enter it in the compound interest calculator, and use the real returns guide to compare it with other options after inflation.
What are the risks of choosing between I bonds and TIPS?
Each carries a different main risk: for I bonds it is a falling rate on locked-up cash, and for TIPS it is price swings before maturity.
- I bond rate cuts. If inflation slows, the composite rate falls with it, and the 1.40% fixed rate is all that remains when inflation is zero.
- I bond lockup and cap. Nothing can be cashed in the first year, early redemptions cost three months of interest until year five, and the $10,000 limit restricts how much protection you can buy.
- TIPS price risk. A rise in real yields lowers the price of a TIPS you may need to sell; the longer the maturity, the larger the drop.
- Inflation below breakeven. A TIPS still beats an I bond at low inflation in the scenarios above, but it can trail an ordinary Treasury of the same maturity.
- Phantom income. TIPS in a taxable account generate tax bills on income that arrives only at maturity.
- Index mismatch for both. The CPI-U averages many households; if your own costs rise faster, neither product fully keeps up.
The government's backing covers repayment, not these market and inflation risks. The overview of types of investment risk and the guide to whether Treasuries are risk-free explain them. All scenarios on this page are illustrations under stated assumptions, not forecasts.