I'm mainly interested in a finding a medium-term, low risk savings vessel. Bank and Credit Union savings accounts available to me at the moment are all < 1% APY, so inflation-protected securities are attractive to me right now.

First of all, it would be helpful if someone could clarify the difference between TIPS and I-Bonds. There are 3 previous questions on this site tagged with TIPS. There is no separate tag I can find for I-Bonds, although there seem to be a few questions and answers that fit them. The Treasury site has this helpful comparison between TIPS and I-Bonds, but doesn't answer some fundamental questions.

  1. Are I-Bonds a type of TIPS?

They're Treasury issued and somewhat inflation protected and they're a bond, so a type of financial security. Is this just a case of overlapping names? Naming things is hard.

  1. Are I-Bonds earnings & interest superior to TIPS?

TIPS imply that they can go down if deflation occurs. Can I-Bonds ever depreciate in value? Also, I-Bonds impose buying limits per person and appear to be non-transferable, implying they have significant benefits over the unlimited, transferable TIPS, which also seem to be available through 3rd-party investment funds.

  1. Do TIPS and I-Bonds rate fluctuate over the term of the bond?

The current rate for I-Bonds seems to be 1.48% while TIPS recently auctioned for a max of 0.842%. I understand that the two account for inflation in different ways: I-Bonds vary the rate while TIPS vary the principle. How much of this is 'locked in' when I purchase the bond for each? Or are both capable of losing money if significant deflation occurs?

  1. If I want to hedge some savings against inflation, should I own both I-Bonds and TIPS?

Alternatively, should I buy I-Bonds up to the $10k/year limit and only put excess in TIPS?

Now, what I'm thinking of doing is putting a portion of my cash savings into I-Bonds every year. This savings is currently a small (admittedly undersized) emergency fund that I would like to grow. I've just paid off some credit card debt so I have some funds to start a new investment. Psychologically though, I have hard time justifying growing a savings when the interest rate is so low.

Since I-Bonds are not redeemable for 12 months, I obviously wouldn't want to tie all my emergency funds up in it right away. If I were to gradually move the account to I-Bonds, similar to a CD Ladder, would that be able to double as an emergency fund (fixed dollar amount equal to 3-6 months living expenses) and long-term cash savings (10-20% of non-retirement investments)? Would TIPS be a better vessel for this strategy?

If you don't think that's not a good use of I-Bonds, then where would I-Bonds and TIPS fit into your investment portfolio?

  • Note that the true name of I-Bonds is Series I Savings Bonds. They are the successor to EE Savings Bonds.
    – RonJohn
    Aug 31, 2022 at 20:10
  • Just as a general finance principle, emergency funds should be extremely liquid and low-risk. It's not an investment account; it's an insurance policy. (And yes, that might require funding it periodically as inflation occurs and lifestyle increases.) Aug 31, 2022 at 22:29

1 Answer 1


edit: Updated (2022) as my answer here was out of date. Updates in bold.

First the questions (succinct reference):

  1. No. The names are weird I agree. I-Bonds are not really securities as they are not tradable.
  2. As of 2021 short term inflation has increased and the interest rates on I-bonds has increased massively. I-Bonds rates are probably one of the best deals out there for bonds currently though that could change in the future
  3. I-Bonds have a fluctuating rate. TIPS have a constant rate, but a fluctuating yield (effective rate) as the price and principle amount both change from the original price and principle.
  4. No, you should generally own equities as a long-term inflation hedge though there can be short-term pain and perhaps some TIPS or commodities which have some inherent inflation protection but also have some downsides. The high yield of I-bonds is amazing currently but they have no inherent inflation protection.

I-Bonds are not generally good for personal investment as they are not marketable when necessary, however currently (in 2021/2022) the rates are so high that I believe they are worth this trouble. While most generally good investments (equity and bond ETFs/Funds) you can buy and largely not think about, I-bonds are currently great in the short-term but they will likely reset to below market rates again in the future. You will have to watch the rates carefully and you can't take the money out freely. Still the rates are so high right now that for many people they are worth that trouble.

Inflation protection is in general an interesting problem. While inflation-protected bonds sound like they are great for inflation protection (after all it is in the name), they may not be the best instruments for long/medium term protection. TIPS really protect against large inflation changes less so sustained inflation. It is really important to remember that inflation protected bonds have significantly lower returns and one form of inflation protection is to just have more money in the future. The short term use of I-Bonds at these very high rates can help here as well as the general long-term higher returns of equity.

When you own a stock you own part of a company and inflation will increase the value of the company relative to the inflated currency. Foreign stocks can give even more protection if you think inflation in your local currency is going to be higher then the foreign currency. Stocks in the past have had significantly higher return overall than inflation protected bonds but have higher risk as well.

As a medium term, low-risk portfolio, it is worth looking into some combination of TIPS, normal bonds and a small to medium allocation of local/foreign stocks all done through low-fee mutual funds or index ETFs.

  • So would a better name for I-Bonds be deflation-protected securities? Or does the negative inflation-rate on this table for May 1, 2009 mean that I-Bonds can still decrease in value if deflation strikes?
    – Dacio
    Mar 3, 2015 at 22:25
  • 1
    Also, I had assumed that electronic I-Bonds would be easy to redeem. In theory, you just log into the treasury website and sell them, provided its after the 12 month initial period and you're willing to lose the last 3 months of interest. This is no worse than getting a long-term CD cashed at a typical bank or credit union (and somewhat better, if the respective interest rates hold). Your answer implies it's significantly harder than that to get your money out of an I-Bond.
    – Dacio
    Mar 3, 2015 at 22:27
  • They are still inflation protection in general though they do have the interesting feature of having an interest rate (fixed + inflation) floor at 0% that TIPS don't have. so they have minimal protection from very low interest rates in combination with inflation rates. But at best this is a temporary difference between 0 and a small negative number. Neither looks good from a medium-term investment perspective.
    – rhaskett
    Mar 3, 2015 at 22:44
  • 2
    This answer downplays the value of the 0 real interest rate floor. For almost all of 2011, 2012, 2013, and 2014 real interest rates were negative, so new I bonds were a much better deal than TIPS and other low risk investments.
    – farnsy
    Mar 4, 2015 at 6:35
  • 1
    Thanks @Avery for getting me to rethink this answer. Though, I disagree that the tax-implications of I-bonds are a meaningful to most small investors. I-bonds may actually have a slight tax disadvantage as you will want to sell them when rates come back down while you can hold tax-deferred capital gains in equity ETFs (largely) in perpetuity. Also, I-bonds have no inherent advantage in bear markets just in periods with short-term inflation spikes. For instance, I-bonds would not have been particularly useful in 2008-2009.
    – rhaskett
    Aug 31, 2022 at 9:18

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