TIPS vs I-Bonds: which is better?

Both protect against inflation. I-bonds have a stronger deflation floor, can defer taxes until redemption, and are capped at $15K/year. TIPS are tradeable, have no purchase limit, but suffer from phantom tax on annual inflation adjustments. For most individuals, max out I-bonds first, then use TIPS in tax-advantaged accounts.

Bond Yield Calculator

Q: What are the I-bond purchase limits?

Each individual can purchase up to $10,000 in electronic I-bonds per calendar year through TreasuryDirect.gov, plus up to $5,000 in paper I-bonds using a federal tax refund. Total: $15,000/year per SSN. I-bonds have a 1-year lockup and a 3-month interest penalty if redeemed before 5 years.

Q: Why are Treasury bonds exempt from state tax?

Under 31 U.S.C. § 3124, interest on U.S. Treasury obligations is exempt from state and local taxation. This applies to T-bills, T-notes, T-bonds, I-bonds, TIPS, and EE bonds. In high-tax states, the tax-equivalent yield of Treasuries can be significantly higher than their nominal yield.

Calculate yield to maturity, fair bond price with rate sensitivity, and compare I-Bonds vs TIPS. Treasury interest is exempt from state and local tax.

Calculate yield to maturity from a bond's current market price

Face value (par)

Par value, typically $1,000

Coupon rate

Annual coupon rate

Current market price

What you'd pay today

Years to maturity

Payment frequency

State income tax rate

For tax-equivalent yield. CA: 9.3%, NY: 6.85%, TX/FL: 0%

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How to Use This Calculator

Yield to Maturity tab

The default tab. Enter the bond's face value (usually $1,000), coupon rate, current market price, years to maturity, and payment frequency. The calculator uses Newton-Raphson iteration to solve for YTM — the annualized return if you hold to maturity and reinvest all coupons at that rate. You also get current yield, total return breakdown, duration, and a tax-equivalent yield for Treasury bonds.

Bond Pricing tab

The reverse calculation. Enter a target YTM and the calculator computes the fair price you should pay. The sensitivity table shows how the price changes if rates move ±0.5%, ±1%, or ±2% — essential for understanding interest rate risk. Modified duration tells you the approximate percentage price change per 1% rate move.

I-Bond & TIPS tab

Compare Series I Savings Bonds and TIPS (Treasury Inflation-Protected Securities). For I-bonds, see the current composite rate (fixed + inflation), projected value, early redemption penalty, and purchase limits. For TIPS, enter expected inflation to project real vs. nominal returns. Both are state-tax-exempt.

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The Formulas

Yield to Maturity (YTM)

YTM is the discount rate that makes the present value of all future cash flows equal to the current price:

Price = ∑ [C / (1 + r)^t] + F / (1 + r)ⁿ

Where:
C = coupon payment per period
F = face value
r = YTM per period (solved iteratively)
n = total number of periods
t = period number (1 to n)

There is no closed-form solution for YTM. This calculator uses the Newton-Raphson method — an iterative numerical technique that converges in ~5–10 steps for typical bonds.

Current Yield vs. YTM

Current Yield = Annual Coupon ÷ Current Price × 100

YTM = Current Yield + Capital Gain/Loss Effect + Reinvestment Effect

Current yield ignores capital gains/losses and coupon reinvestment. YTM captures all three components of bond return.

Duration

Macaulay Duration = ∑ [t × PV(CF_t)] ÷ Price

Modified Duration = Macaulay Duration ÷ (1 + r)

Approx. Price Change = -Modified Duration × ΔYield × Price

I-Bond Composite Rate

Composite = Fixed Rate + (2 × Semiannual Inflation Rate) + (Fixed × Semiannual Inflation)

Current: 1.20% + (2 × 2.0%) + (1.20% × 2.0%) = ~5.24%

The composite rate resets every 6 months for each bond, based on rates announced each May 1 and November 1.

Example

David — Retiree, 62, Portland OR

David is building a bond ladder for income. He's evaluating a 10-year Treasury note with a 4.5% coupon, currently priced at $975. Oregon state tax is 8.75%. He also wants to max out I-bonds.

Yield to Maturity tab

Face value$1,000

Coupon rate4.50%

Current price$975

YTM4.80%

Current yield4.62%

Tax-equivalent yield (8.75% state)5.26%

The YTM of 4.80% accounts for both the 4.50% coupon and the $25 capital gain at maturity. Because Treasury interest is state-tax-exempt, David would need a corporate bond yielding 5.26% to match after Oregon state tax.

I-Bond & TIPS tab

I-Bond purchase$10,000

Composite rate~5.24%

Value after 5 years$12,903

State tax savings (8.75%)$254

David buys $10K in I-bonds (electronic) and plans to buy $5K in paper I-bonds with his tax refund. The ~5.24% composite rate adjusts with inflation every 6 months, giving him a real return of at least the 1.20% fixed rate.

FAQ

What is Yield to Maturity (YTM)? ▼

YTM is the total annualized return you earn if you buy a bond at today's price, hold it until maturity, and reinvest every coupon payment at the same rate. It accounts for coupon income, capital gain or loss (if purchased above or below par), and the time value of money. YTM is the standard way to compare bonds with different coupons, prices, and maturities.

What’s the difference between current yield and YTM? ▼

Current yield is simply the annual coupon divided by the current price — it measures income only. YTM also factors in capital gain/loss at maturity and coupon reinvestment. For a bond bought at a discount (below par), YTM is higher than current yield because you gain the discount at maturity. For a premium bond, YTM is lower.

Why are Treasury bonds exempt from state tax? ▼

Under 31 U.S.C. § 3124, interest on obligations of the United States is exempt from state and local taxation. This applies to all Treasury securities: T-bills, T-notes, T-bonds, I-bonds, TIPS, and EE bonds. This makes Treasuries especially valuable in high-tax states like California (13.3%), New York (10.9%), and Oregon (9.9%). Use the tax-equivalent yield to compare fairly with taxable bonds.

What is the current I-bond rate in March 2026? ▼

The current I-bond composite rate is approximately 5.24%, set in November 2025 and valid through April 30, 2026. This is composed of a 1.20% fixed rate (locked for the life of your bond) and a 2.0% semiannual inflation rate (resets every 6 months based on CPI-U). The next rate announcement is May 1, 2026. The fixed rate is historically favorable — it was 0% for most of 2020–2022.

What are the I-bond purchase limits and restrictions? ▼

Each individual (per SSN) can purchase up to $10,000 in electronic I-bonds per calendar year through TreasuryDirect.gov, plus up to $5,000 in paper I-bonds using their federal tax refund (IRS Form 8888). Total: $15,000/year. I-bonds cannot be redeemed in the first 12 months. If redeemed between 1–5 years, you forfeit the last 3 months of interest. After 5 years, no penalty. I-bonds earn interest for 30 years.

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