TIPS vs I Bonds: same promise, very different machines
Both are U.S. Treasury obligations that protect purchasing power. Nearly everything else about them differs: how much you can buy, what they yield, how they are taxed, and what happens if you need the money early.
The comparison at a glance
| TIPS | I Bonds | |
|---|---|---|
| Annual purchase limit | None in practice | $10,000 per person via TreasuryDirect |
| Return above inflation | Market real yield, locked at purchase (see today's) | Fixed rate set at purchase, historically lower |
| Can market value fall? | Yes, before maturity | No, value only ratchets up |
| Liquidity | Sellable any trading day | Locked 12 months; 3-month interest penalty before 5 years |
| Where held | Any brokerage or TreasuryDirect | TreasuryDirect only |
| Federal tax timing | Annual, including phantom income | Deferred until redemption |
| State and local tax | Exempt | Exempt |
| Ladderable for income | Yes, that is the point | Poorly; redemptions only |
| Maximum life | 5, 10, or 30 years | 30 years |
What actually decides it
The purchase limit does most of the deciding for you. Ten thousand dollars a year cannot fund a retirement income floor; a ladder producing $40,000 a year for twenty years takes roughly $600,000 at recent yields. Anyone building serious inflation-protected income ends up in TIPS because there is no other way to get there.
Yield does the rest. A TIPS bought today locks the market real yield, about 2.4% at the 10-year as of August 2026, above the vast majority of readings since 2003. The I Bond fixed rate, the only part of an I Bond that outlives current inflation, is set administratively and has run well below TIPS real yields throughout the recent period. When real yields are this high, TIPS simply pay more for the same guarantee, and in unlimited size.
I Bonds keep two genuine advantages. Their value never falls, so money you might need in three years is safer there than in a TIPS you might sell at a loss. And their tax deferral makes them the better inflation hedge in a taxable account for savers who cannot spare tax-advantaged space, since TIPS in a taxable account generate tax on money you have not received yet.
A plain decision rule
Money measured in thousands with a horizon under five years: I Bonds. Money measured in tens or hundreds of thousands meant to pay you a real income later: a TIPS ladder, sized in the calculator. Households that max the $10,000 I Bond allowance each year and put the rest into rungs are not choosing between them; they are using each machine for what it does.
The TIPS Primer covers the full decision in depth: taxes with worked examples, account placement, auction mechanics, and the workbook that prices any ladder you sketch.