I Bond Online Versus TIPS Bond

What is the difference between an I Bond Online versus TIPS?

An I Bond Online, or I Savings Bond, is a savings investment sold at face principle that offers interest, low risk and protection against inflation. A TIPS bond, or Treasury Inflation-Protected Security, is a marketable product whose bond values are influenced by fluctuations in the Consumer Price Index. A TIPS bond accrues interest over the span of six month intervals and reaches maturity over a lifespan of 5, 10 and 30 years.

How to buy an electronic I Bond Online or TIPS bond

An I Bond can be purchased electronically through most online treasury institutions. Paper issued I Bonds are also available through credit unions, banks and many savings institutions. A Treasury Inflation-Protected Security is available through Legacy Treasury Direct, brokers, dealer, banks or auctions. Investors should note that 30-year TIPS are not offered by the Legacy Treasury Direct program.

I Bond and TIPS Purchase Limits

There is a $5,000 maximum cap per year and per social security on the purchase of an electronic I Bond online. A TIPS investment, on the other hand, offers non competitive bidding through auction with a maximum cap of $5 million, and competitive bidding of 35% on principal offer.

Difference in Face Value

I bond pricing varies greatly. The minimum purchase of an electronic I Bond is $25. Paper I Bonds are also available starting at $50 and increase in increments of $75, $100, $200, $500, $1,000 and $5,000. TIPS can be purchased for a minimum of $100 and increase in increments of $100.

I Bond Online Inflation Indexing Versus TIPS

The inflation rate for I Bonds is determined by changes in the US Consumer Price Index for all urban consumers and disclosed semiannually by the Bureau of Labor Statistics, while TIPS inflation adjustments are recorded every month.

Interest Earnings

An I Bond online accrues interest over its lifespan and is paid on maturity. TIPS bonds receive interest semiannually and the rate of interest payment is determined at auction. The principal of an inflation-adjusted TIPS bond determines the interest rate.

TIPS and I Bond Online Tax Regulations

Federal interest income tax is applied on TIPS semiannual interest payments which increase principal value during the calendar year they occur. However, TIPS are not subject to local or state income tax. Interest accrued on an I Bond online is tax exempt on the local and state income tax level, but subject to income tax on the federal level. However, deferred tax reporting on interest accrued can be applied up until maturity of the bond.