HYSA vs I-Bond vs TIPS 2027 — After-Tax Yield Comparison

Compare three popular cash-equivalent options for 2027: High-Yield Savings (HYSA, 4-5%), Series I Bonds (variable + 1.20% fixed, federal-only taxable), and TIPS (CPI + real yield, federal-only taxable). Calculate after-tax yield based on your bracket. Source: treasurydirect.gov, federalreserve.gov.

Best After-Tax Yield
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Compare 3 options
HYSA After-Tax
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I-Bond After-Tax
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TIPS After-Tax
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Winner
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Assumed CPI
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Why I-Bond and TIPS Beat HYSA at High Tax Brackets

HYSA interest is taxed at federal + state ordinary income rates. I-Bond and TIPS interest is federal-only (state-exempt). For a CA resident at 24% federal + 9% state: HYSA effective tax 33%, but I-Bond/TIPS only 24%. The 9% state-tax savings adds 0.9% effective yield. At 5% HYSA gross vs 3.5% I-Bond gross, after-tax HYSA = 3.35% but I-Bond = 2.66% — HYSA still wins because gross gap is too big. Math: I-Bond wins only if state rate > (HYSA gross − I-Bond gross) / I-Bond gross.

I-Bond Mechanics 2027

Series I Savings Bonds (TreasuryDirect.gov) yield two components: fixed rate (set when bought, 1.20% as of recent issue) + variable rate (semiannual CPI-U inflation adjustment). Composite rate currently ~3.11%. Holding period minimum 1 year, lose 3 months' interest if redeemed before 5 years. Annual purchase limit $10,000 per Social Security number plus $5,000 via tax refund.

TIPS — Treasury Inflation-Protected Securities

Issued by Treasury, principal adjusts with CPI semiannually. Real yield set at auction (currently ~2%). At maturity (5/10/30 year), receive inflation-adjusted principal. Interest taxable federally as paid, principal adjustments taxable annually even though not received until maturity ('phantom income'). Best held in IRA/401k to defer phantom-income tax.

Practical Allocation by Tax Bracket

Low bracket (12% federal, 0% state): HYSA wins because tax differential is small and HYSA has highest liquidity. Mid bracket (24% + state): I-Bond shines in CPI rising environment. High bracket (37% + high state like CA/NY): TIPS in tax-deferred account ideal. Always max I-Bond annual $10,000 limit first — federal-only tax + flexibility unmatched.