I Bonds vs TIPS
I Bonds (Series I Savings Bonds) are bought directly from TreasuryDirect.gov, capped at $10,000 per person per calendar year. They earn a fixed rate plus an inflation rate that resets every six months, interest is tax-deferred and state-tax-free. TIPS (Treasury Inflation-Protected Securities) are marketable Treasury notes/bonds whose principal adjusts with CPI; they pay a fixed coupon on the adjusted principal twice a year. TIPS can be bought via brokerage or in ETF form (SCHP, VTIP). I Bonds have a 1-year hold and a 3-month interest penalty if redeemed before year 5. TIPS trade freely but the inflation adjustment is federally taxable annually (phantom income), so they’re best held in tax-advantaged accounts.
In May 2022, the I Bond composite rate hit 9.62%, a once-in-a-decade deal driven by the inflation spike. A couple maxing $20,000 ($10K each) earned roughly $1,900 of tax-deferred, state-tax-free interest in the first six months. Meanwhile, a 10-year TIPS bought the same month had a real yield near 0%, so it just kept pace with inflation but offered far better scale and liquidity for a $200K cash slug.
Treating I Bonds as a substitute for an emergency fund. The 12-month lockup means the money is genuinely inaccessible. Use them for medium-term goals (2 to 7 years) where inflation protection matters and you don’t need next-Tuesday liquidity.
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