TIPS vs I Bonds Comparison Calculator
Both TIPS and I Bonds protect against inflation but differ in tax treatment, liquidity, and purchase limits. TIPS trade on secondary markets with no purchase cap; I Bonds cap at $10,000/year ($15,000 with tax refund) but tax-defer interest until redemption.
Key Differences Beyond Yield
I Bonds: $10K annual purchase limit ($15K with refund), tax deferral until redemption, 1-year lockup, 3-month interest penalty if redeemed within 5 years. TIPS: no purchase limit, taxed annually on inflation adjustment (phantom income), trade freely on secondary market, principal at maturity floored at face.
Phantom Income Problem With TIPS
TIPS principal adjusts upward with CPI. This adjustment is taxed annually as ordinary income — even though you receive no cash for it (held in account balance). On a $10K TIPS with 3% inflation, you owe tax on $300 of phantom income annually. Hold TIPS in IRA/401k to eliminate this drag.
When To Use Each
I Bonds: emergency fund (>1-year horizon), tax-efficient inflation hedge in taxable accounts. TIPS: large allocations exceeding I Bond limits, intermediate-term inflation hedge inside IRA/401k, retirement income with annual coupon flow. Many investors hold both — I Bonds in taxable up to the limit, then TIPS in tax-advantaged accounts.
Source: TreasuryDirect.gov Comparison Guide 2025, SEC Series I Bond Tax Treatment. Last updated: May 2026.