If news of high inflation has you anxious, you’re not alone. The costs of food, gas, and housing just keep climbing year over year, eating away at your savings and making it harder to get ahead. But what if I told you that two of the most reliable, government-backed investments are specifically designed to outpace inflation—and most people have never tried them? Treasury I-bonds and Treasury Inflation-Protected Securities (TIPS) are often called “boring,” but for investors who crave stability and real returns, boring can be beautiful.
Key Takeaways: Why Consider I-Bonds and TIPS?
Both I-bonds and TIPS are U.S. government-backed and designed to protect your money from inflation.
I-bonds adjust for inflation every six months; TIPS adjust their principal.
Bonds currently offer yields much higher than most high-yield savings or CDs, sometimes over 4-5%.
Minimum investments are accessible—just $25 for TIPS, $25 to $10,000 per year for I-bonds.
Online brokers like M1 Finance can help you automate bond purchases for long-term portfolios.
What Are Treasury I-Bonds and TIPS?
Understanding Government Inflation-Linked Bonds
When it comes to safeguarding your investments against inflation, U.S. government inflation-linked bonds are at the top of the list. Two core options stand out:
I-bonds (Series I Savings Bonds): U.S. savings bonds that earn interest based on a combined fixed rate and an inflation rate pegged to the Consumer Price Index for All Urban Consumers (CPI-U).
TIPS (Treasury Inflation-Protected Securities): U.S. Treasury bonds that increase in value as inflation rises, adjusting both principal and interest payments with the Consumer Price Index’s movements.
Both are “zero default risk” because they’re backed by the full faith and credit of the U.S. Treasury. But each serves a different use case, and understanding their mechanics can help protect your portfolio from eroding value—especially in times of high inflation.
How I-Bonds Work: The Basics and Benefits
Dual Interest Components Explained
I-bonds earn interest in two ways, which combine to deliver a yield that combats inflation:
Fixed Rate: Set when the bond is issued and remains the same throughout its life (currently 0.90% for bonds issued May–October 2024).
Inflation Rate: Updated every May and November. For example, as of May 2024, the latest composite rate for I-bonds is 4.28%—which includes the fixed rate and the latest 6-month inflation adjustment.
This means if inflation jumps, so does your interest! If inflation drops, your composite interest does too, but your principal never goes down and the fixed rate is always positive.
Why Savers Love I-Bonds
Easy to Buy: Purchase I-bonds directly from TreasuryDirect.gov in as little as $25, or use your tax return to buy paper bonds up to $5,000.
Tax Advantages: Interest is exempt from state/local taxes, and you can delay federal taxes until you cash in or the bond matures (or potentially avoid tax if used for education under certain circumstances).
Safe and Simple: No risk of principal loss due to inflation. No market price fluctuation—the value only goes up.
I-Bond Purchase Limits and Liquidity
Annual purchase limit: $10,000 per year per person electronically (plus $5,000 per year via paper with your tax refund)
Minimum holding period: 12 months (cannot redeem early)
Early withdrawal penalty: Forfeit last 3 months’ interest if cashed before 5 years
I love the hands-off approach; I set-and-forget up to $10,000 for each member of my family, making it a great inflation-fighting “bucket” for emergency savings or college funds.
How TIPS Work: Protection for Larger Investments
Principal Adjustments With Inflation
TIPS are a little more complex but perfect for those looking to invest larger sums. Here’s the science:
Face Value Grows with CPI: TIPS’ principal increases with inflation and decreases with deflation (but never below initial value at maturity).
Interest is Variable: The bond’s coupon rate is fixed, but the dollar amount paid every 6 months increases or decreases as the adjusted principal grows or shrinks.
This is powerful: if you hold TIPS to maturity, you’re always guaranteed at least your original investment, plus inflation adjustment, no matter what price volatility happens in between. That makes TIPS a core holding for many retirement-focused portfolios I'm seeing today.
Access and Flexibility
Available in 5, 10, and 30-year maturities (minimum $100, purchased at auction or via a broker)
Tradeable on the open market before maturity—unlike I-bonds, prices can fluctuate above or below par
TIPS ETFs make access even easier through zero-commission platforms like Robinhood or M1 Finance
For example, Schwab’s SCHP ETF holds U.S. TIPS and can be bought with as little as one share. This adds diversification and liquidity for those managing larger portfolios or retirement accounts.
I-Bonds vs. TIPS: Key Differences Explained
Side-By-Side Feature Comparison
FeatureI-BondsTIPS
Purchase Limit$10,000 per year (e-bond)No annual limit
How to BuyTreasuryDirect onlyBrokers/ETFs/auctions
Interest AdjustmentFixed + inflation (CPI-U)Principal adjusted for CPI-U
Early RedemptionAfter 12 months (penalty if <5 years)Trade anytime (market price fluctuates)
Tax BenefitsState/local tax free, federal tax deferredState/local tax free, taxable annually
Minimum$25 (e-bond); $50 (paper)$100 (auction, brokers often $25+)
Which Is Best for Your Portfolio?
I-bonds are better for smaller investments, hands-off savings goals, and emergency funds—especially at today’s high rates and for young families.
TIPS work well inside IRAs/401(k)s, for large portfolios, and for those who want to actively trade or buy bond ETFs for more liquidity.
There’s no rule against using both! Many seasoned investors combine I-bonds for automatic inflation-beating on a set dollar amount, and TIPS for longer-term, big-ticket retirement and income protection.
Real Data: Performance and Historical Returns
Actual Yields and Scenarios
Let’s look at concrete numbers. In 2022, I-bonds offered a record-high yield of 9.62%—driven by runaway post-pandemic inflation. While the composite rate has come down in 2024, it still sits at a comfortable 4.28%, which easily trounces average high-yield savings accounts and most 1-year CDs. Over 10 years, I-bond holders have beaten inflation every single year.
For TIPS, the 10-year real yield in June 2024 is about 2.1%, which means investors earn 2.1% over actual CPI-based inflation, no matter how high it goes. During severe inflation periods like 2021–2022, TIPS outperformed comparable nominal Treasuries by 3–5%. However, be aware that in deflationary periods, TIPS may deliver lower returns (though your principal is still protected at maturity).
Case Study Example: $10,000 Over 5 Years
I-bonds (average 4% inflation rate): After 5 years, $10,000 grows to about $12,167, even after a 3-month interest penalty if cashed.
TIPS (2% real yield, 4% average inflation): $10,000 grows to about $12,537, with interest paid away annually if held in a taxable account.
CD at 1.5% fixed: $10,000 would only become $10,773—losing to inflation!
This matters for your financial security: purchasing power is protected and actually enhanced with each, versus “safe” bank options, which lag well behind inflation year after year.
How to Buy: Step-by-Step Guide to Accessing I-Bonds and TIPS
Buying I-Bonds Direct from the U.S. Treasury
Visit TreasuryDirect and register for an account.
Select “BuyDirect,” choose Series I Bonds, and enter your desired amount (minimum $25, up to $10,000 electronically per year).
Link your bank account and complete the purchase in minutes.
You can also buy up to $5,000 in paper I-bonds by electing a portion of your federal income tax refund. That means a household of two adults could sock away up to $25,000 per year in I-bonds alone.
How to Buy and Hold TIPS
At auction: You can buy new-issue TIPS in $100 increments at TreasuryDirect or any major brokerage.
On the secondary market: TIPS trade like other bonds. Brokers like M1 Finance and Robinhood let you purchase individual TIPS with no commission.
Through ETFs: ETFs like TIP, SCHP, and VTIP hold baskets of TIPS and are available on all major platforms. Automated portfolio apps such as Acorns, M1, or Betterment often include TIPS in their bond allocations for retirement.
For larger accounts or rollovers, owning TIPS inside IRAs can provide long-term inflation protection and simplify annual tax reporting, since interest is tax-deferred until withdrawn.
Pros and Cons of Inflation-Protected Bonds
Pros:
- Virtually zero default risk (U.S. government-backed)
- Guaranteed inflation protection for principal and interest
- Tax benefits, especially I-bonds (can manage tax timing)
- Simple set-it-and-forget-it strategy for most investors
Cons:
- Annual I-bond limits ($10,000) can crimp larger investors
TIPS’ valuations can fluctuate before maturity and react to market yields
I-bonds have no liquidity for 12 months, and a 3-month interest penalty if cashed within 5 years
Neither is a “get rich quick” investment—they’re for steady inflation protection
Who Should Consider I-Bonds and TIPS?
Best Use Cases for Each
I-bonds for young families, college savers, and anyone looking to protect cash savings from inflation.
TIPS for retirees, long-term investors, and those with large taxable or retirement portfolios who want to reduce inflation risk.
Great for laddering strategies—combine with bank CDs or high-yield savings for an “inflation-protected core.”
Blending I-Bonds and TIPS With Other Safe Assets
Allocating 10–30% of the fixed income portion of your portfolio into I-bonds/TIPS provides consistent inflation outperformance without major risk.
Pair with automated investing on platforms like Acorns and M1 Finance for hands-free inflation hedging in diversified retirement plans.
Alternative Ways to Beat Inflation: Passive Income Ideas Beyond Bonds
Other Boring But Reliable Inflation Fighters
While I-bonds and TIPS are two of the safest bets, you can also combine them with other predictable passive income tools:
Series EE Savings Bonds (guaranteed double in 20 years)
Dividend ETFs and REITs: Real estate, especially through hands-off platforms like Fundrise, can provide monthly passive income that outpaces inflation.
Interest-bearing high-yield savings or CD laddering: Not inflation-proof, but a solid complement with FDIC protection.
Some side hustles (such as earning cash-back from platforms like Rakuten or Swagbucks) can add inflation-fighting power to your monthly cash flow.
You can track your overall inflation-adjusted returns and measure long-term progress using a free dashboard like Personal Capital to keep your plan on track.
Final Thoughts: Why Boring Investments Are Often Best
With inflation at multi-decade highs, the “boring” solution of I-bonds and TIPS is anything but dull for those who want safety, simplicity, and inflation-ready returns. I've used both in my own portfolio for years, and I recommend everyone consider adding them, especially when short-term rates can’t keep up with living costs. Their unique blend of safety, flexibility, and superior yields compared to ordinary savings makes them a foundational block for financial independence.
If you’re investing for the long term and want peace of mind, now is an excellent time to diversify beyond the stock market. Open a free account with M1 Finance or Acorns today, and allocate a portion of your bond portfolio to inflation-protected solutions. For completely hands-off investors, consider Betterment, which automatically rebalances TIPS for you. Your future purchasing power depends on it—don’t let inflation steal your dreams!
