< You cannot sell I-Bonds within the first year, true, but you can sell them at any time after that. If you do so within a 5 year window you lose the previous 3 months of interest, which is a not-very-high penalty if you really want to get out.

After 5 years of ownership you can sell them at any time without penalty. >

This is incorrect.

An I-series savings bond cannot be sold in the secondary market. I-bonds are "non-marketable" securities, meaning they cannot be bought or sold to another person. I-Bonds can be redeemed or "cashed in" with a bank or the U.S. Treasury. The statement above would be correct if it said "cashed in" instead of "sold."

Differences between I-Bonds and TIPS

1. As stated above, I-Bonds are "non-marketable" while TIPS have a large, active secondary market.

2. I-Bonds are limited to $10,000 per year while TIPS may be bought in any amount above 1 bond ($1,000).

3. In the event of deflation the TIPS principal will decline while the I-Bond principal never declines.

4. I-Bonds are always cashed in at par value, regardless of prevailing interest rates, even if they are cashed in before maturity. TIPS value may decline if sold before maturity.

5. TIPS interest and "phantom interest" are always taxed in the year incurred while I-Bond interest may be deferred until maturity (at which time it would be taxed as a lump sum). However, the I-Bond owner may choose to begin paying taxes on interest before maturity to avoid the lump sum.

6. I-Bonds' interest changes with inflation but the par value of the bond stays the same. TIPS interest stays the same (coupon) but the principal changes with inflation.
Wendy