With TIPS, the big difference is that when the inflation component is negative, TIPS decline in value and I bonds don't. And with TIPS the adjustments happen monthly rather than on a six-month cycle.

If you hold the TIPS to maturity you are guaranteed to get back the amount you invested, although you can lose early inflation gains to deflation. With I bonds you can't lose early inflation gains.

In general, I'd say that if you want to invest more than $10,000 a year, TIPS are a good way to go. For lesser amounts stick with I bonds.

Tom Adams

The yield at last auction was 1.4% (actual interest rate 1.375%) Got that far.

Now do the feds pay the same inflation component as they do on I bonds?

This being the case, are 5 year tips a better investment than a new I bond with a 0% fixed component?

Now more confusion…I know the rules on cashing I bonds….but tips have to be held to maturity or sold on the bond market to liquidate them…Got that far…

I understand that I could lose if I sell them on the bond market, but what happens if I hold them to maturity and cash them? Will my full principal be returned or a possible reduced amount should there be a drop in inflation?

Please pardon my ignorance and thanks for all the help you give.

Danny

Tom Adams

If only I'd discovered them a few years earlier…