I Bonds Yield 4.26% With Inflation Protection. Here’s How They Compare With Dividend Income

A Treasury-backed savings bond and a telecom stock near a 52-week low are advertising similar yields, but the comparison goes well beyond the headline number. How much income you actually keep depends on taxes, timing, and risk.

Series I savings bonds carry a 4.26% composite rate on bonds issued during the current offering window. A new rate applies to bonds issued after that period ends. On the stock side, T-Mobile (NASDAQ:TMUS | TMUS Price Prediction) recently traded at $146.32 in premarket action. Based on its annualized forward dividend of $4.68 per share, that implies a yield of about 3.2%. Neither figure is a guaranteed return, and the differences go far beyond the rate alone.

How an I Bond Earns Interest and When the Rate Changes

An I bond is a savings bond sold directly by the U.S. Treasury. Its return has two parts. One is a fixed rate, currently 0.9%, which stays with the bond for its entire life. The other is a semiannual inflation rate, currently 1.67%, which changes every six months with inflation. Treasury combines the two using its formula to produce the composite rate. The inflation component is not locked in, so it can move up or down, and the bond’s rate resets every six months from the issue date.

The rules are strict, and they matter to anyone who may need the money:

• Purchase cap: electronic purchases are limited to $10,000 per person per year.
• Lockup: the bond cannot be cashed in during the first 12 months.
• Early-redemption penalty: cashing it in before five years means giving up the last three months of interest.
• Maturity: the bond pays interest for 30 years, then matures. At redemption, you receive your original investment plus all accrued interest.

Interest is added to the bond’s value rather than paid out in cash. Anyone who wants a quarterly check would have to redeem the bond to access the money.

Dividend Safety Comes First in the I Bond vs. T-Mobile Comparison

The first question is whether the payment is reliable. T-Mobile’s dividend has risen quickly. It paid $0.65 per share each quarter through 2024, $0.88 in 2025, and $1.02 starting later that year. The board later declared a $1.17 per share dividend, a 14.7% increase. It goes ex-dividend on a later date and is paid in December.

Cash flow appears to support the payout. Management raised full-year 2026 adjusted free cash flow guidance to between $18.4 billion and $18.8 billion, with cash capex of about $10 billion. Second-quarter free cash flow was $4.797 billion. The board’s 2026 shareholder return authorization of up to $18.2 billion covers both buybacks and dividends, and buybacks are the more flexible component. Since the program began in the third quarter of 2022, T-Mobile has returned $44.2 billion through buybacks and $10.4 billion through dividends.

There are still pressures. Total debt excluding tower obligations stood at $86.9 billion in the second quarter of 2026. Postpaid churn rose to 0.99%, and costs tied to the UScellular merger and the retail overhaul are still flowing through results. The CFO also said the company is keeping capital available for spectrum auctions in 2027 and 2028, which will compete with shareholder returns for cash.

Investors have taken note. The stock is down 26.35% year to date and 31.91% over the past year. Telecom shares also fell after reports that SpaceX had held cell tower talks for Starlink Mobile. A lot of the current yield comes from the lower share price, not from a larger payout.

That is the central tradeoff. A Treasury-backed I bond cannot have its payment cut by a board, and its redemption value never falls. But it also cannot deliver more than the fixed rate and inflation formula allow. A T-Mobile dividend can keep growing, as it has every year since it began, and it still has room to rise. It can also be reduced, and the shares behind it can lose value. The stock’s 11.55% decline over the past month shows how fast that can happen.

I bonds carry their own risks. The government guarantee protects principal and accrued interest. It does not protect purchasing power beyond what the formula captures, and it does not let you buy more than the annual cap. The biggest risk is reinvestment risk: if inflation slows, the variable component resets lower and the composite rate falls with it, while the 0.9% fixed portion stays the same. The money is also tied up for a year, and early redemption costs interest.

Taxes Can Decide Between I Bond Interest and Qualified Dividends

The federal government taxes I bond interest as ordinary income. It is exempt from state and local taxes. Cash-method taxpayers can also delay federal tax until the earlier of the year they cash in or dispose of the bonds, or the year the bonds mature. That gives retirees the option to choose when the income appears, ideally in a lower-income year. Interest may also be excluded under the Education Savings Bond Program if the bonds are redeemed in the same year qualified higher education expenses are paid, such as a grandchild’s tuition, subject to the program’s rules.

T-Mobile’s dividends are treated as qualified dividends if the holding-period test is met. Federal law generally taxes qualified dividend income at the preferential rates that apply to long-held assets, which are usually lower than ordinary income rates. Dividends are taxable at the state level, and tax is due in the year they are received, with no deferral option. The I bond’s state-tax exemption can be especially valuable in high-tax states. In a state with no income tax, the lower federal rate on dividends may be more attractive.

Who Each Option Suits

I bonds may appeal to retirees who want inflation-linked savings that cannot lose value, who can leave the money untouched for at least a year and preferably five, and who live in a high-tax state or want control over when interest becomes taxable. T-Mobile’s dividend may suit income investors who want quarterly cash now and a payout with a history of growth, and who can tolerate share-price declines. Before relying on that payout, they should be comfortable with the company’s debt load and its spectrum spending plans. For readers reconsidering the withdrawal math behind either choice, the broader income-first case is covered in a free guide.