Can Series I Savings Bonds or TIPS Get You Richer Quicker?

Aug 28th, 2022 9:00 EST

ibonds vs tips

If you’re looking for an investment option that is less volatile than the stock market, your options aren’t limited to savings accounts. Both TIPS and Series I savings bonds are investments that help you protect your principal while earning over a period of time. Both are safer investments that don’t carry the reward potential of more risky investments. Below we analyze how each works and cover which one might be the right option for you. Keep in mind that investing can be a very personalized activity that requires specific advice for your unique financial position. This is why you may want to first speak to a financial advisor before deciding to invest in either.

What Are Series I Savings Bonds?

Series I Savings Bonds are a low-risk savings product that you can purchase directly from TreasuryDirect. This website allows investors to buy Treasury securities directly from the U.S. government. Series I savings bonds earn interest throughout their lifetime and are protected from inflation.

Here are how the bonds work for each of the major components:

What Are TIPS?

ibonds vs tips

Treasury Inflation-Protected Securities (TIPS) is a Treasury security designed to provide inflation protection. With TIPS, the principal or face value fluctuates according to inflation (or deflation), measured by the consumer price index (CPI). Then when TIPS mature, you are paid the adjusted or original principal – whichever is higher. TIPS are purchased at auction through TreasuryDirect and through banks, brokers and dealers.

Here is how each of the major components of TIPS works:

Should You Buy I Bonds or TIPS?

There is no simple answer to whether you should buy I bonds or TIPS. Both I bonds and TIPS have their strengths and weaknesses. Notably, I bonds have a favorable tax treatment, while TIPS have much higher purchase limits. Let’s take a closer look at which option might be a good fit for you.

You should consider buying I Bonds during periods of inflation because it offers one of the safest and highest inflation-adjusted yields available. You also won’t be on the hook for any tax payments until you sell the bond because the product doesn’t make regular interest payments. However, if you have a lot of capital to deploy then this might not be the best option because you’re limited to buying $10,000 per year, or $15,000 if the last $5,000 comes from tax refunds.

TIPS offer a layer of inflation protection as well but the principal values, and not their interest rates, are adjusted to incorporate inflation. There are pretty much zero purchase constraints with TIPS, giving you the ability to invest quite a bit if you’d like to. TIPS is also a better option if you’re looking for the investment to be more liquid than a Series I Bond allows.

While you can always buy both, the one you should prioritize depends on your situation and goals. It is always a good idea to meet with a financial advisor before making a final decision.

The Bottom Line

ibonds vs tips

I Bonds and TIPS are two Treasury securities you can purchase directly through TreasuryDirect. TIPS, however, can also be purchased on the open market, such as through a broker. Both I bonds and TIPS provide inflation protection for individuals – or for institutions, in the case of TIPS. Both have advantages for investors and can strengthen a portfolio, regardless of economic conditions.

Tips for Investing

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