Both Series I bonds and TIPS can provide you with some protection against inflation. While they are similar, there are numerous differences between these two types of investments. Here are the basics of Series I bonds and TIPS and how they differ.

Series I Bonds

Series I bonds are a type of savings bond that is sold by the United States government. This type of bond is going to pay a certain amount of interest that is determined by the amount of inflation over a certain period. With this type of bond, you will receive interest twice a year. The amount of inflation that is paid depends on changes to the Consumer Price Index. With this type of investment, you are going to be able to defer paying taxes until you redeem the bond.

TIPS

Treasury Inflation-Protected Securities, or TIPS, are a very similar type of investment. With TIPS, the Treasury pays a set coupon rate but adjusts the amount of principal depending on inflation. Therefore, your investment can earn more interest as your principal grows. The problem with this type of investment is that you have to reinvest interest payments, and you have to pay taxes on these payments when you receive them.

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