I-bonds vs TIPS yield calculator

About this 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.

FAQ

Can I get more than $10k/year in I-bonds?

Yes — split across spouses ($10k each), trusts ($10k per trust), and tax-refund I-bonds ($5k via Form 8888). A married couple with no trusts can buy $25k/year. With trusts, theoretically unlimited, though IRS scrutinizes excessive trust I-bond schemes.

What's the early-redemption penalty really cost?

Forfeit the most recent 3 months of interest if cashed before 5 years. On a $10k bond yielding 4.3% composite, that's about $107. Worth it if you need the cash; not worth panic-selling for short-term rate fluctuations.

TIPS phantom income — how bad is the tax drag?

Bad in taxable accounts. If TIPS principal accrues 5% from inflation but you're holding for 10 years, you're paying tax annually on accrual you haven't received. In a tax-advantaged account (Roth IRA, 401k), this disappears — accrual isn't taxed, only withdrawal. Always hold TIPS in tax-advantaged accounts when possible.

Are these really risk-free?

Free of credit risk and inflation risk (their whole point). Not free of: tax-policy risk, liquidity risk on I-bonds in the first 5 years, or interest-rate risk on TIPS held to maturity. Like any bond, TIPS market price drops when real yields rise — only matters if you sell before maturity.

I-bond fixed rate %	1.3%
Expected annual inflation %	3%
TIPS real yield (10yr) %	1.95%
Federal marginal tax %	22%
State marginal tax %	5%
Years held	10
Amount invested	$10,000

TIPS total after tax	$14,845
I-bond annualized after-tax	3.48%
TIPS annualized after-tax	4.03%
I-bond advantage	-$762