Series I Bonds & TIPS Update
Series I Bond composite rate 4.26% | 10-Year TIPS real yield 2.43%
Treasury yields have been moving higher, while inflation remains above the Fed’s 2% target. Below we compare two of our preferred inflation-protection investments: Series I Savings Bonds and Treasury Inflation-Protected Securities (TIPS).
SERIES I SAVINGS BONDS
Series I Savings Bonds purchased through October 31 earn a 4.26% composite rate for their first six months. The composite rate combines a 0.90% fixed rate, which applies for the life of the bond, and an inflation adjustment that resets every six months based on changes in the headline Consumer Price Index (CPI). The current semiannual inflation adjustment is 1.67%, or 3.34% annualized, based on the change in the headline CPI rate between September 2025 and March 2026. Treasury will announce an updated semiannual inflation adjustment on November 1, based on the change in the headline CPI rate between March and September 2026.
I Bonds are purchased at TreasuryDirect.gov, with a $10,000 limit on electronic I Bonds per person per calendar year. The maximum holding period is 30 years, with a minimum purchase amount of $25. I Bonds cannot be redeemed during the first 12 months, and bonds redeemed within the first five years forfeit the interest earned in the most recent three months. Interest is exempt from state and local income taxes, and federal income taxes may be deferred until you redeem the bond.
TREASURY INFLATION-PROTECTED SECURITIES (TIPS)
TIPS currently offer attractive real yields between 2.1% and 3.0% across the yield curve. They pay a fixed coupon rate every six months, while their principal value is adjusted daily based on changes in the headline CPI. As of the August 10 close, the 5-year TIPS real yield is 2.16%, the 10-year TIPS real yield is 2.43%, and the 30-year TIPS real yield is 3.00%, near the highest level since the 30-year TIPS was reintroduced in 2010.
TIPS do not have an annual purchase limit. They can be purchased at no cost via the TreasuryDirect.gov website or at most major brokerages. Unlike I Bonds, TIPS trade at market prices, and their price will fluctuate as real interest rates move up and down. The next TIPS auctions include a 30-year auction scheduled on August 20 and a 10-year auction on September 17.
We generally recommend holding TIPS in a tax-deferred account. In a taxable account, both the semiannual interest payments and inflation adjustments to principal are subject to federal income tax in the year they occur.
CHOOSING BETWEEN I BONDS AND TIPS
Both securities use the Consumer Price Index for inflation protection, but they apply it differently. I Bonds reset their inflation rate every six months, while TIPS principal changes with a daily index ratio, and their semiannual interest payments are calculated on the adjusted principal. As of August 10, TIPS real yields were 1.2 to 2.1 percentage points higher than the 0.90% fixed rate offered on I Bonds, depending on maturity. Based on current 5-year TIPS real yields, we expect the Series I Bond fixed rate to increase when Treasury announces new rates on November 1.
I Bonds offer several advantages over TIPS. Their redemption value does not fluctuate with market yields, and federal income tax on the interest may generally be deferred until redemption without using a tax-deferred account. Both I Bonds and TIPS are exempt from state and local income taxes. Those advantages come with a $10,000 annual purchase limit, a 12-month minimum holding period, and a three-month interest penalty on redemptions before five years, as mentioned above.
Both Series I Bonds and TIPS offer conservative investors the opportunity to earn a positive real return with inflation protection.
Subscribers can visit our Rates Update page, which updates daily, to view attractive money market funds, certificates of deposit, U.S. Treasury securities, and municipal bond offerings.
In case you missed it, here is our most recent Model Portfolios Update published earlier this month.