Inflation-Protected Bonds: TIPS and I Bonds
Two kinds of US government bonds built to protect against inflation, how each one works, and how they differ in buying, selling, limits, and taxes.
The short version
TIPS and I bonds are US government bonds designed to keep up with inflation. TIPS raise their principal with the Consumer Price Index and pay a fixed rate on that adjusted amount; they trade in the market, so their prices move. I bonds combine a fixed rate with an inflation rate that resets every six months, can only be bought electronically from the Treasury with an annual limit, and can't be sold to anyone else. They're taxed differently too.
By the end of this lesson, you'll be able to
- Explain how TIPS adjust for inflation
- Explain how I bonds earn interest and the rules for buying and cashing them
- Compare TIPS and I bonds on access, liquidity, limits, and taxes
Why this matters
Inflation and Purchasing Power showed how rising prices quietly shrink what fixed payments can buy. For bonds, which mostly pay fixed amounts, that's a central risk. The US Treasury offers two kinds of bonds built to deal with it, and they work quite differently.
The rules in this lesson are set by the Treasury and can change. Check TreasuryDirect for the current details before buying.
TIPS
TIPS. Treasury Inflation-Protected Securities: Treasury bonds whose principal rises and falls with inflation, as measured by the CPI. Glossary, Treasury Inflation-Protected Securities, mature in 5, 10, or 30 years. Their principal is tied to the Consumer Price Index: it rises with inflation and falls with deflation. They pay a fixed interest rate every six months, but because that rate is applied to the adjusted principal, the interest payments change too.1
At maturity, you receive the inflation-adjusted principal or the original principal, whichever is greater, so deflation can't push your repayment below the original amount.1
Ana owns $1,000 of TIPS with a hypothetical fixed rate of 1% a year, paid as 0.5% every six months. Over the next year, the Consumer Price Index rises 3%.
| At the start | A year later | |
|---|---|---|
| Principal | $1,000 | $1,030 |
| Each six-month interest payment | $1,000 × 0.5% = $5.00 | $1,030 × 0.5% = $5.15 |
Both the principal and the interest grew with inflation, so the bond's purchasing power held steady. An ordinary bond would still be paying $5.00 on $1,000.
TIPS can be bought at Treasury auctions or through a broker, and sold in the market before maturity. That means their market prices move, just like other bonds, when interest rates change. The protection is against inflation, not against price swings before maturity.
The rest of this lesson is for members
Still to come in this lesson: I bonds, Taxes, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Inflation in the 1970s coming soonLessons from Market History (depth track)
- Yield MeasuresFixed Income in Depth (depth track)
- Interest Rate, Inflation, and Currency RiskPart 5: Building a Portfolio
Notes and sources
- TreasuryDirect, U.S. Department of the Treasury. Treasury Inflation-Protected Securities (TIPS). Checked 2026-10-14. Back to text
- TreasuryDirect, U.S. Department of the Treasury. I bonds interest rates. Checked 2026-09-30.
- TreasuryDirect, U.S. Department of the Treasury. Series I Savings Bonds. Checked 2026-09-30.
- TreasuryDirect, U.S. Department of the Treasury. Comparison of TIPS and Series I Savings Bonds. Checked 2026-09-30.
- TreasuryDirect, U.S. Department of the Treasury. Tax information for EE and I bonds. Checked 2026-09-30.