An I Bond's Fixed Rate Is 1.30%. A 10-Year Treasury Pays 5.17%. Here's Why the I Bond Can Still Win.

Marcus, 34, is comparing two numbers on his screen. TreasuryDirect shows an I bond fixed rate of 1.30%. His brokerage account shows a 10-year Treasury note yielding 5.17%. On the surface it looks like an easy call: skip the I bond, buy the Treasury, collect nearly four times the rate. That comparison is wrong, and not in a small way. The two numbers aren't measuring the same thing.

What "real" and "nominal" actually mean

Start with a plain example. Say a savings account pays 4% a year, and prices rise 3% a year. At the end of the year you have 4% more dollars, but each of those dollars buys about 3% less than it used to. What you actually gained, in terms of what your money can buy, is closer to 1%. That 4% is the nominal rate, the number printed on the account. The roughly 1% is the real rate, what you keep after inflation takes its cut.

Almost every rate you see advertised, a savings account, a CD, a Treasury bond, is nominal. It doesn't adjust for inflation on its own. If inflation runs hotter than expected, your real return shrinks, even though the nominal rate never changed.

I bonds and TIPS, Treasury Inflation-Protected Securities, work differently. Their headline rate is the real rate. An I bond's 1.30% fixed rate isn't an estimate of what you'll earn above inflation, it's a guarantee: your money grows 1.30% a year faster than inflation, whatever inflation turns out to be, for as long as you hold the bond. That's the piece Marcus is missing. He's comparing a guaranteed real rate to an unguaranteed nominal one.

What each one actually offers

Rates as of Sept. 25, 2026. I bond fixed rate is a November 2026 estimate. Sources: TreasuryDirect, U.S. Treasury yield curves.

Notice the third column. A 10-year TIPS, bought directly, currently guarantees 2.83% above inflation, more than double the I bond's 1.30%. If the goal is simply the highest guaranteed real return, TIPS beat I bonds outright, not just sometimes. So why would anyone choose the I bond at all? Because of the two columns next to it: no market price risk if you hold to maturity or need to sell early, tax deferral until you cash out, and a level of simplicity that doesn't require a brokerage account. I bonds trade a lower guaranteed rate for convenience and a hard cap that keeps the whole thing small and low-stakes.

Where the Treasury wins, and where the I bond does

The 10-year Treasury's 5.17% isn't really one number, it's two numbers stacked together: a real yield of about 2.83%, the same real return a 10-year TIPS guarantees, plus roughly 2.34 percentage points the bond market is pricing in for average inflation over the next decade. Subtract one from the other and you get that 2.34%, called the breakeven inflation rate. It's the bond market's own forecast.

If inflation actually comes in at or below that 2.34%, the Treasury delivers its full 2.83% real return or better, comfortably ahead of the I bond's 1.30%. If inflation runs meaningfully hotter than the market expects, the Treasury's real return shrinks, because its 5.17% is fixed in dollars and doesn't adjust. The I bond doesn't have that risk. It always delivers 1.30% above whatever inflation turns out to be, hot or cold.

The I bond's line is flat because its rate is defined relative to inflation. The Treasury's line slopes down because its rate is fixed in dollars while inflation, the thing eroding it, keeps changing. They cross at 3.88% inflation, per SwitchWize's model. Below that line, the Treasury wins, often by a lot. Above it, the I bond's guarantee starts paying off, and the more inflation overshoots, the bigger the gap grows in the I bond's favor.

This isn't a hypothetical curiosity. From 2021 into 2022, annual inflation ran well above 6% for extended stretches, far past this crossover point, which is exactly the period I bonds became a mainstream headline for paying a 9.62% composite rate. Investors holding nominal Treasury bonds bought before that spike watched their real returns get overrun by inflation they hadn't priced in. Investors holding I bonds didn't have that problem. That's the insurance the I bond is actually selling: not a higher return, protection against being wrong about inflation.

What the gap is worth in dollars

Notice the I bond's bar never moves. That's the entire point of a guaranteed real rate: $11,383 in today's purchasing power after 10 years, regardless of which inflation scenario actually happens. The Treasury's bar swings from $13,220 down to $9,303, below the $10,000 originally invested, because its return is only as good as the market's inflation guess turns out to be. In the hot-inflation scenario, the Treasury holder didn't just underperform, they lost real purchasing power. The I bond holder didn't.

The lead doesn't shrink gradually and then flip. It's a straight line from a Treasury advantage of $1,837 down to an I bond advantage of $2,080, and the crossing point sits at 3.88% inflation, not at some dramatic extreme. A run of inflation only a bit hotter than the last few years would already be enough to swing the lead.

Where this breaks down

None of this makes the I bond the best choice by default. Two honest complications work against it. First, the $10,000-a-year purchase cap means an I bond can never be a serious way to invest real savings, only a small supplement to it. Second, and more important: a direct 10-year TIPS purchase offers the same kind of guarantee, above inflation no matter what, at 2.83% instead of 1.30%, more than double, with no cap at all. If you're comfortable buying Treasury securities directly (free at TreasuryDirect.gov, no brokerage account required for that part either), a TIPS ladder does everything an I bond does, better, at any size.

So the real decision isn't "I bond or Treasury." It's closer to three tiers: TIPS for the highest guaranteed real return if you have more to invest and don't mind a security whose price moves before maturity; I bonds for a small, simple, zero-drama inflation hedge capped at $10,000 a year; and a plain nominal Treasury if you're confident inflation will behave, or don't want inflation protection at all.

What Marcus decided

Marcus put $10,000 into a 10-year TIPS ladder through his brokerage account, guaranteeing 2.83% above inflation on the bulk of his long-term safe money, and kept his I bond purchase for a smaller amount he wanted to set aside without ever thinking about it again. He's no longer comparing 1.30% to 5.17% as if they were the same kind of number. He's asking a different question now: how much inflation protection does this specific pile of money need, and how much complexity is he willing to manage to get it.

Quick answers

Why is an I bond's rate so much lower than a Treasury's? They measure different things. The I bond's rate is guaranteed above inflation. The Treasury's rate is fixed in dollars and only beats inflation if prices behave as the market expects.

When does an I bond actually beat a 10-year Treasury? Only if inflation averages above about 3.88% a year over the hold, per SwitchWize's model, well above the roughly 2.34% already priced into today's market.

Is a 10-year TIPS better than an I bond? On guaranteed real return alone, yes, 2.83% versus 1.30% today, with no purchase cap. I bonds still offer simplicity, no market price risk if held, and tax deferral that TIPS don't.

Methodology

Nominal and real Treasury yields are from the U.S. Treasury's daily par yield curve and daily par real yield curve, both as of September 25, 2026 (10-year nominal 5.17%, 10-year real 2.83%). Breakeven inflation is the difference between the two. The I bond's 1.30% fixed rate is SwitchWize's own November 2026 estimate, detailed in a companion piece; the Treasury does not announce it until November 1. All projections model $10,000 held for the stated period, compounding every six months. The I bond side applies TreasuryDirect's own composite-rate formula (fixed rate, plus twice the assumed semiannual inflation rate, plus a small cross term) at each reset. The Treasury side compounds its nominal yield every six months, a standard yield-to-maturity simplification that assumes coupons reinvest at the same rate. Real, inflation-adjusted values divide the nominal result by the same assumed inflation compounded over the same period. The 3.88% crossover rate and the three dollar-chart scenarios come directly from this model. This is a simplified illustration, not investment advice; actual Treasury note prices, reinvestment rates, and I bond fixed rates will differ from any single assumption.

Sources

• U.S. Treasury daily par yield curve rates (nominal)
• U.S. Treasury daily par real yield curve rates (TIPS)
• TreasuryDirect: I bonds interest rates
• TreasuryDirect: Treasury Inflation-Protected Securities (TIPS)
• SwitchWize: An October I Bond Locks In a 0.90% Fixed Rate for 30 Years