Series I Bonds vs. Bond Funds: 27 Years of Head-to-Head Results

What $500 invested every year since 1998 reveals about risk, return, and inflation protection

Introduction

Conventional financial wisdom treats investment grade bond funds as a standard component of diversified portfolios, and U.S. Series I Savings Bonds as a niche or optional product. This distinction understates the role I Bonds could play in a long-term investment strategy.

Series I Bonds are explicitly designed as a hedge against inflation, with principal guaranteed by the U.S. Treasury and interest tied to the Consumer Price Index. In contrast, investment grade bond funds such as FBNDX (Fidelity Investment Grade Bond Fund) carry market risk: their values fall when interest rates rise, and they benefit only when interest rates decline. This distinction was highlighted in the aftermath of the COVID-19 pandemic, when inflation and interest rates rose leading to lower traditional bond values and higher Series I values.

This paper measures and compares returns and risk from two different investment approaches.

In the first, an investor contributes $500 each November to FBNDX, reinvesting all dividends.

In the second, the same investor contributes $500 each November to Series I Bonds, holding each bond to maturity without redemption penalties.

By tracking outcomes from November 1998 through September 2025, the analysis provides an evidence-based view of how these two strategies perform under varying interest rate and inflation environments.

Data and Methodology

Data Sources
- Series I Bonds: Composite interest rate history from U.S. TreasuryDirect. https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf

- FBNDX: Adjusted closing price history, including reinvested dividends.https://finance.yahoo.com/quote/FBNDX/CHAT GPT will clean copied file so it only includes date and adjusted closing price.

Investment Schedule
- $500 invested each November from 1998 to 2024 (27 contributions).
- Portfolio values measured each November 1 (1999–2024) and September 1, 2025.