Key takeaways
- I bonds bought from Nov. 1, 2026, through April 30, 2027, earn 5.51% for the first six months, including a 1.40% fixed rate that lasts the life of the bond.
- TIPS currently offer higher real yields: the October 2026 5-year TIPS auction priced at a 2.367% real yield, and the September 10-year reopening at 2.653%.
- TIPS create “phantom income”: the yearly inflation adjustment is federally taxable even though you don’t receive it in cash until maturity.
- You can buy up to $10,000 in electronic I bonds per person per year at TreasuryDirect. TIPS have no purchase cap.
TIPS and I bonds are both U.S. Treasury securities that protect your money from inflation. I bonds are savings bonds with a $10,000 yearly limit, no price swings and tax-deferred interest, which makes them a strong choice for cash you won’t need for at least a year. TIPS are marketable bonds with no purchase cap and, right now, higher real yields, but their prices move with interest rates and their inflation gains are taxed each year.
Inflation is still a live issue in 2026. The Consumer Price Index rose 3.7% in the 12 months through September, according to the Bureau of Labor Statistics, up from 3.4% in August. That’s well above the yield on many bank accounts once taxes are counted. Here’s how each bond works, what they pay now and which one fits your goals.
TIPS vs. I bonds at a glance
| Feature | I bonds | TIPS |
|---|---|---|
| Current rate | 5.51% composite (1.40% fixed + inflation) for purchases Nov. 2026–Apr. 2027 | Real yield about 2.37% (5-year) to 2.65% (10-year) at recent auctions, plus inflation |
| Purchase limit | $10,000 per person per year (electronic) | No limit for individuals at auction (up to $10 million noncompetitive) |
| Minimum | $25 | $100 |
| Terms | Earns interest up to 30 years | 5, 10 or 30 years |
| Can you lose money? | No. Value never falls | Yes, if you sell before maturity after real yields rise |
| When you can sell | After 12 months; lose last 3 months of interest if cashed before 5 years | Any trading day through a brokerage |
| Federal tax | Deferred until you cash the bond | Due each year on interest and inflation adjustment |
| State and local tax | Exempt | Exempt |
| Where to buy | TreasuryDirect only | TreasuryDirect, brokerages, TIPS mutual funds and ETFs |
How I bonds work
An I bond’s rate has two parts:
- A fixed rate set when you buy. It never changes. For bonds bought from November 2026 through April 2027, it’s 1.40%, the highest since November 2006.
- An inflation rate that resets every six months based on CPI-U. The current semiannual inflation rate is 2.04%, reflecting CPI changes from March to September 2026.
Treasury combines them with this formula: fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate). That works out to 1.40% + 4.08% + 0.03% = 5.51%. If prices fall, the inflation part can be negative, but the composite rate can never go below zero, so your bond’s value can’t shrink.
Interest is added to the bond every month and compounds every six months. You must hold an I bond for at least 12 months. If you cash it before five years, you give up the last three months of interest.
Tip: The fixed rate is what matters most for long-term holders, because the inflation part changes every six months. A 1.40% fixed rate locks in a real return above inflation for as long as you keep the bond, up to 30 years.
How TIPS work
Treasury Inflation-Protected Securities pay a fixed coupon rate, but the coupon is applied to a principal that rises and falls with CPI-U. When inflation rises, your principal goes up, and so does each interest payment. Interest is paid every six months.
At maturity, you receive the inflation-adjusted principal or the original principal, whichever is greater. That deflation floor protects your starting investment if you hold to maturity.
TIPS are sold at auction with a real yield, which is your return above inflation. At the Oct. 22, 2026, auction, Treasury sold new 5-year TIPS at a real yield of 2.367% with a 2.25% coupon. On the same day, the regular 5-year Treasury note yielded about 4.78%. The gap between the two, about 2.41%, is the “breakeven” inflation rate. If inflation averages more than that over five years, TIPS should come out ahead of the regular Treasury.
New to bonds in general? Our bonds for beginners guide explains yields, prices and duration.
Worked example: how the inflation adjustment works
Say you buy $10,000 of TIPS with a 2.25% coupon, and inflation runs 3% over the next year. To keep the math simple, we’ll treat the adjustment and interest as annual.
| Step | Calculation | Result |
|---|---|---|
| Adjusted principal | $10,000 x 1.03 | $10,300.00 |
| Interest paid to you in cash | $10,300 x 2.25% | $231.75 |
| Inflation adjustment (not paid until maturity or sale) | $10,300 − $10,000 | $300.00 |
| Federally taxable income for the year | $231.75 + $300 | $531.75 |
| Federal tax at a 22% bracket | $531.75 x 22% | $116.99 |
You received $231.75 in cash but owe tax on $531.75. That $300 is phantom income: taxable now, received later. Your after-tax cash for the year is $114.76, which is why many investors hold TIPS in an IRA or 401(k), where the yearly adjustment isn’t taxed.
Now the I bond. If you put $10,000 into I bonds in November 2026, the 5.51% annual rate applies for the first six months. Your bond would be worth about $10,275.50 after six months (TreasuryDirect’s own figures may differ by a few cents because of rounding). No tax is due until you cash it. If you redeemed after 12 months but before five years, the three-month interest penalty at today’s rate would be roughly $137.75.
Want to see how inflation erodes uninvested cash? Try our inflation calculator.
How TIPS and I bonds are taxed
I bonds
Interest is subject to federal income tax but exempt from state and local income tax. Most people defer the tax until they cash the bond or it stops earning interest after 30 years. If you use the money for qualified higher-education costs and meet IRS income limits, the interest may be partly or fully tax-free.
TIPS
Both the coupon interest and the yearly upward inflation adjustment are federally taxable in the year they occur, even though the adjustment isn’t paid until maturity. TIPS interest is exempt from state and local income tax. TIPS mutual funds and ETFs pass inflation adjustments through as taxable distributions, so the cash flow is less awkward, but the tax still applies in a taxable account.
How to buy TIPS and I bonds
- I bonds: Open an account at TreasuryDirect.gov and buy electronic bonds from $25 up to $10,000 per person per year. Paper I bonds bought with your tax refund were discontinued as of Jan. 1, 2025.
- TIPS at auction: Bid noncompetitively through TreasuryDirect or most brokerages, with a $100 minimum. You get the yield set at auction.
- TIPS on the secondary market: Buy existing TIPS through a brokerage at the current market price. You can choose specific maturity dates, which is useful for building a TIPS ladder.
- TIPS funds and ETFs: Easiest for small amounts and retirement accounts, but a fund has no maturity date, so its price can fall when real yields rise.
Tip: If you might need the money within a year, neither bond is ideal. Keep that cash in a high-yield savings account or a short-term CD instead.
Which should you choose?
- Choose I bonds for medium-term savings you won’t touch for at least 12 months, ideally five years or more, if you want zero risk of loss and tax deferral.
- Choose TIPS if you want to invest more than $10,000 a year, want a higher real yield than the I bond’s 1.40% fixed rate, or need inflation protection inside a retirement account.
- Use both if you’re building a retirement income plan. Many retirees fill their I bond limit each year and hold TIPS in an IRA.
Inflation-protected bonds work best as one piece of a diversified portfolio. Our investment strategies guide and 401(k) vs. Roth IRA guide explain where they can fit.
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Frequently asked questions
What is the I bond rate for November 2026?
I bonds bought from Nov. 1, 2026, through April 30, 2027, earn a 5.51% composite rate for their first six months. That includes a 1.40% fixed rate that stays with the bond for life and a variable inflation component that resets every six months.
Can you lose money on TIPS?
Yes, if you sell before maturity. TIPS prices fall when real yields rise. If you hold to maturity, you get at least your original principal back, plus inflation adjustments.
What is phantom income on TIPS?
It’s the yearly increase in a TIPS bond’s principal due to inflation. The IRS taxes that increase in the year it happens, even though you don’t receive the cash until the bond matures or you sell it.
Are I bonds better than a high-yield savings account?
At 5.51%, I bonds currently pay more than top savings accounts, which offer about 4.0% to 4.27% APY. But I bonds lock up your money for 12 months and charge a penalty before five years, so they’re not a substitute for an emergency fund.
Can I buy more than $10,000 in I bonds a year?
Each person can buy $10,000 in electronic I bonds per calendar year. Spouses can each buy their own $10,000, and trusts or businesses with their own tax ID can also buy. There’s no separate paper-bond option anymore.
Related: What the Fed’s October 2026 decision means for your money
Sources: U.S. Treasury / TreasuryDirect I bond rate announcement (Nov. 2026 rates) and TIPS product rules; Tipswatch auction reports on 10-year TIPS reopening (Sept. 17, 2026) and 5-year TIPS auction (Oct. 22, 2026); Bureau of Labor Statistics CPI release (Oct. 14, 2026); IRS guidance on savings bond and TIPS taxation. Calculations by FinInfoBlog. This article is for educational purposes and isn’t financial or tax advice.
Written by Chanchala
Founder & Lead Writer · B.Sc. Mathematics (Honors) · 9 years in banking & lending
Chanchala is the founder and lead writer of FinInfoBlog. She holds a B.Sc. in Mathematics (Honors) and has 9 years of experience in banking and lending. She writes plain-English guides on savings, CDs, loans, credit and personal finance for U.S. readers, and makes sure every example shows the math behind the money decision. How we research and fact-check.