INFLATION · 5 MIN READ · REVIEWED JULY 12, 2026
Inflation-Linked Tools: TIPS and I Bonds
Compare two U.S. Treasury tools designed to respond to inflation, including how adjustments, access, taxes, and market prices differ.
- TIPS and Series I savings bonds both respond to inflation but use different mechanics.
- TIPS are marketable securities whose principal adjusts with CPI; market prices can fluctuate.
- I Bonds are nonmarketable savings bonds with access limits and rates that reset under a formula.
- Current rates, tax treatment, holding rules, and purchase limits must be checked before acting.
Same inflation concern, different liquidity
Dana may need money in three years and compares a TIPS purchased through a brokerage with an I Bond. The TIPS can be sold before maturity but its market price may be lower. The I Bond cannot be redeemed during its first year and may lose recent interest if redeemed before five years. Dana chooses only after matching those rules to the actual deadline.
How TIPS work
Treasury Inflation-Protected Securities are marketable Treasury notes or bonds. Their principal changes with the Consumer Price Index, and the fixed interest rate is applied to the adjusted principal. At maturity, Treasury rules determine the amount repaid.
Because TIPS trade in the market, their price can rise or fall with real interest rates and demand. Inflation protection does not mean the holder cannot lose money when selling before maturity.
How I Bonds work
Series I savings bonds are nonmarketable Treasury securities. Their composite rate combines a fixed rate with an inflation rate that is reset periodically under Treasury's formula. The value does not fluctuate in a public trading market.
I Bonds cannot be redeemed during the first 12 months. Redemption before five years generally forfeits the latest three months of interest. Annual electronic purchase limits and registration rules apply and can change.
Tax and cash-flow differences
Federal tax treatment and the timing of taxable interest can differ. TIPS inflation adjustments may create taxable federal income before the security matures when held in a taxable account, while savings-bond owners may have choices about reporting interest. State and local treatment also matters.
Tax rules are personal and change over time. Review current Treasury and IRS guidance or seek qualified advice instead of making the choice from yield alone.
What these tools do not solve
Both connect to a national inflation measure, not the exact cost of your rent, health care, tuition, or groceries. Their returns can lag personal expenses, and neither replaces emergency liquidity, broad diversification, or a complete retirement plan.
A security can protect against one risk while introducing others: access restrictions, interest-rate risk, reinvestment decisions, taxes, and opportunity cost.
Choose by job and deadline
Write the date the money may be needed, whether early access is required, the tax location, and the inflation risk being addressed. Then compare current terms directly on TreasuryDirect.
Avoid buying because a recent inflation number is frightening. A defined allocation and review rule is more durable than switching an entire portfolio after prices have already moved.
These primary government and regulator resources support the guide and offer additional detail.
TreasuryDirect TIPS TreasuryDirect Series I savings bonds IRS tax information for Treasury securities