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Why a stable balance may still lose ground
A fixed nominal return can leave your savings with less purchasing power if prices rise faster than the return after taxes. A growing account balance, by itself, does not show that you can buy more with the money. Inflation risk is one of the risks faced by people receiving fixed interest, as the SEC’s Investor.gov bond guide explains.
“Low risk” can mean several different things: a low chance of losing principal, less exposure to inflation, ready access when an expense arises, or less chance of receiving a reduced amount if you sell a bond before maturity. No single savings product removes all of these risks.
Keep near-term savings accessible
Start with the money you may need for emergencies or planned expenses. Eligible insured bank deposits are generally designed for accessible cash, but rates and account terms vary. Check the institution, account type, ownership category, and your balances against current FDIC rules before relying on deposit insurance; the sources cited here do not establish a current coverage limit or account rate.
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Compare an account’s after-tax yield and access terms with inflation rather than treating its nominal rate as the whole answer. Avoid putting money needed soon into a product with a redemption restriction or a market price that can fall before you sell.
Compare the inflation-linked Treasury choices
| Option | How it relates to inflation | Access | Main risk to consider |
|---|---|---|---|
| Eligible insured bank deposits | Account rate is set by its terms and may change; no current rate is established here. | Generally used for accessible cash; account terms vary. | Insurance depends on the institution, account type, ownership category, and balances. Verify current FDIC rules. |
| Series I savings bonds | Interest combines a fixed rate and a CPI-U-based inflation component that resets every six months; the composite rate has a zero floor. | Not marketable. Cannot be redeemed during the first 12 months; redemption before five years forfeits the last three months of interest. | Access is restricted, and the rate can change. They are backed by the full faith and credit of the U.S. government. |
| TIPS | Principal adjusts with CPI-U; coupon interest is calculated on the adjusted principal. | Marketable; can be bought at auction or through banks, brokers, and dealers, and sold before maturity. | Market prices can move with interest rates and liquidity. Selling before maturity can mean receiving less than you paid. |
These are different ways to address inflation exposure, not interchangeable guarantees. TreasuryDirect says both TIPS and I bonds adjust for inflation. For background on the mechanics, see its TIPS and Series I bond comparison.
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When Series I bonds may fit
An I bond’s interest rate combines a fixed component, which applies for the life of the bond, and an inflation component based on CPI-U changes. The inflation component resets every six months. The overall rate can rise or fall, but its floor is zero, so a change in inflation does not make the stated rate negative. This links part of the return to inflation; it does not guarantee that the bond will outpace every saver’s costs or do so over every period.
TreasuryDirect lists a 4.26% composite rate, including a 0.90% fixed rate, for I bonds issued from May 1 through October 31, 2026. That is the rate for bonds issued in that window, not a long-term promise; existing bonds change according to their own six-month schedule. Check the TreasuryDirect I bonds page for current terms.
- You cannot redeem an I bond during its first 12 months.
- If you redeem before holding it for five years, you lose the last three months of interest.
- TreasuryDirect lists a $10,000 annual electronic purchase limit per Social Security Number or Employer Identification Number.
- I bonds are not marketable securities, so you cannot sell them to another investor on the bond market.
I-bond interest can generally be reported for federal income tax when the bond is redeemed or another taxable event occurs. Interest is exempt from state and local income tax. Tax treatment depends on your circumstances; consult current IRS guidance or a tax professional.
When TIPS may fit
TIPS adjust principal with CPI-U, and their coupon interest is calculated on that adjusted principal. TreasuryDirect lists 5-, 10-, and 30-year maturities. You can buy them at auction or through banks, brokers, and dealers, and you can sell them before maturity. That marketability provides a way to exit, but it does not ensure that the sale price will preserve your principal.
Unlike an I bond held outside a market-traded account, a TIPS price can move before maturity. Bond values may respond to interest-rate and liquidity changes; if you need to sell when the market price is down, you may receive less than you invested. Consider the term, market yield, tax effects, and likelihood of holding to maturity before choosing one.
Federal income tax generally applies in the year TIPS interest is paid and in the year an inflation adjustment increases principal, even if you have not sold the security. TIPS interest and inflation adjustments are exempt from state and local income tax. This timing can create a tax bill on an increase in principal that has not been received as cash, so account type and tax circumstances matter. Check current IRS guidance for your situation.
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Choose by timing, access, and tax treatment
- Separate near-term cash. Keep money you may need soon accessible, using eligible insured deposits after checking current coverage rules and account terms.
- Set a realistic holding period for the rest. If an I bond’s 12-month lockup and early-redemption penalty could create a problem, it may not fit that portion of your savings. If you consider TIPS, assess whether you can tolerate a lower sale price if you need to exit before maturity.
- Compare the inflation link and tax timing. I bonds reset an inflation component every six months and generally allow federal tax reporting to be deferred until redemption or another taxable event. TIPS adjust principal with CPI-U, but increases are generally federally taxable in the year they occur.
- Check current terms before buying. Rates, issue periods, and Treasury rules can change. Review TreasuryDirect’s current I bond information or TIPS comparison alongside your own time horizon and tax situation.
The right choice depends on when you may need the money, the terms available when you buy, and your tolerance for restrictions or market-price changes. The Treasury’s product descriptions explain mechanics, not a suitable allocation for every saver.
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