Investing

Comparison of TIPS and Series I Savings Bonds

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When you think of inflation-protected bonds, you probably think of TIPS. But did you know that I Bonds are also adjusted for inflation? There are, however, significant differences between TIPS and I-Bonds. Treasury Direct, which has a wealth of information on U.S. bonds, has created a handy chart explaining the difference between these two investments.

TIPSI-Bonds
Type of InvestmentMarketable - can be bought and sold in the secondary securities marketNon-marketable - cannot be bought or sold in secondary securities market. Registered in names of individuals and some entities, including trusts, estates, corporations, partnerships, etc. See Learn More about Entity Accounts for full information on the entity registration types.
How to buyAt auction through TreasuryDirect, Legacy Treasury Direct, or through banks, brokers, and dealers. NOTE: One maturity of TIPS, the 30 year TIPS, isn’t offered in Legacy Treasury DirectElectronic: Anytime online from TreasuryDirect. Paper: most banks, credit unions, or savings institutions
Purchase LimitsAuction: Non-competitive bidding: up to $5 million - Competitive bidding - up to 35% of offering amountElectronic: $5,000 per SSN per calendar year. Paper: $5,000 per SSN per calendar year
Par Amount/Face ValueMinimum purchase is $100. Increments of $100.Electronic: purchased in amounts of $25 or more, to the penny; Paper: Offered in 7 denominations ($50, $75, $100, $200, $500, $1,000, and $5,000)
Inflation IndexingInflation adjustments measured by CPI-U published monthlySemi-annual inflation rate (based on CPI-U changes) announced in May and November
Discounts/Face AmountPrice and interest determined at auctionElectronic I-bonds - purchased in amounts of $25 or more, to the penny. Paper bonds issued at face amount (A $100 I-Bond costs $100).
Earnings RatesPrinciple increases/decreases with inflation/deflation. Interest calculations are based upon adjusted principle. Fixed interest rate.Earnings rate is a combination of the fixed rate of return, set at the time of purchase, and a variable semiannual inflation rate.
InterestSemiannual interest payments are based on the interest rate set at auction. Inflation-adjusted principle is used to calculate the interest amountInterest accrues over the life of the bond and s paid upon redemption
Tax IssuesSemiannual interest payments and inflation adjustments that increase the principle are subject to federal tax in the year that they occur, but are exempt from state and local income taxesTax reporting of interest can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. Interest is subject to federal income tax, but exempt from state and local income taxes. Interest can also be claimed annually.
Life spanTIPS are issued in terms of 5, 10, and 30 yearsEarn interest for up to 30 years
Disposal before maturityCan be sold prior to maturity in the secondary marketRedeemable after 12 months with three months interest penalty. No penalty after 5 years

For me, TIPS make the most sense, primarily because they are marketable. That means they can be bought and sold in the secondary market. While you can buy bonds directly from Treasury Direct, many invest in bonds through mutual funds. I own a Vanguard fund that invests in TIPS (VIPSX), for example. You can also buy individual bonds or bonds funds online from your favorite discount broker.

Rob Berger

Rob Berger

Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.


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