I-Bonds vs. TIPS vs. Series EE: The Inflation Protection Decision

Three government bonds promise inflation protection but deliver it through very different mechanisms. I-Bonds have an annual $10K limit but zero direct interest rate risk. TIPS have no purchase limit but complex tax treatment. Series EE bonds guarantee doubling in 20 years — a unique guarantee worth roughly 3.5% annual return if held the full term.

Each wins in specific scenarios. None is universally best.

I-Bonds

Series I Savings Bonds from TreasuryDirect:

• Purchase limit: $10,000/year per person ($20K for married couples, $40K with kids)
• Interest: fixed rate + inflation rate, adjusted semi-annually
• Can't sell first 12 months; selling in years 2-5 forfeits last 3 months interest
• After 5 years, no penalty
• Tax: federal only (state exempt); can defer until redemption
• Education exemption: tax-free if used for qualified education expenses

Current I-Bond rate (late 2025): variable, but recent rates have been 3-5% composite. When inflation spiked in 2022, I-Bond rates hit 9.62% briefly.

TIPS

Treasury Inflation-Protected Securities:

• Purchase at TreasuryDirect or through brokerages
• No annual purchase limit
• Principal adjusts with CPI
• Fixed "real" interest rate on adjusted principal
• Inflation adjustment is taxable annually (phantom income)
• Maturities 5, 10, 30 years

Current 10-year TIPS real yield: ~2%. Combined with expected inflation, total yield roughly 4-5%.

TIPS belong in tax-advantaged accounts due to phantom income issue.

Series EE Bonds

Series EE Savings Bonds from TreasuryDirect:

• Purchase limit: $10,000/year per person
• Guaranteed to double in 20 years (equivalent to 3.526% annual return)
• Current fixed rate is much lower (2.7%)
• Tax: federal only, deferred until redemption
• Education exemption available

The 20-year doubling guarantee is the feature. If you hold exactly 20 years, your $10K becomes $20K. Sell before 20 years and you get only the fixed-rate interest (currently much less than doubling).

The Comparison Framework

I-Bonds: best for near-term inflation hedging with strict $10K/year limit. Won't lose value. Tax-efficient in taxable accounts.

TIPS: best for larger allocations to inflation protection. No purchase limit. Requires IRA/Roth to avoid phantom income.

Series EE: locked 20-year doubling guarantee. Not useful unless you can commit to 20-year hold and believe inflation will stay moderate.

The Current Environment Choice

In 2026 with inflation moderating and real yields positive:

• $10K/year in I-Bonds: reasonable default
• TIPS in IRA: for additional inflation protection
• Series EE: only if you know you'll hold 20 years and want guaranteed 3.5%

Stacking: buy I-Bond to limit, then TIPS for additional exposure. Skip Series EE unless 3.5% guaranteed return matters more than higher expected returns elsewhere.