I Bonds Pay 4.26% With Built-In Inflation Protection. Here’s How That Stacks Up Against Dividend Income

Series I savings bonds carry a 4.26% composite rate on bonds issued from May 1, 2026 through October 31, 2026. That window closes this week, and a new rate applies to bonds issued starting November 1, 2026. On the stock side, T-Mobile (NASDAQ:TMUS | TMUS Price Prediction) traded at $146.32 in premarket trading on October 28, 2026. Against its annualized forward dividend of $4.68 per share, that works out to an indicated yield of about 3.2%. Neither number is a guaranteed return, and they differ in more ways than the rate.

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 rate has two parts. The first is a fixed rate, currently 0.9%. It stays with the bond for its full life. The second is a semiannual inflation rate, currently 1.67%. It tracks inflation and resets every six months. Treasury combines the two with its own formula to produce the composite rate. The inflation component is never locked. It can fall as easily as it can rise, and each bond’s rate changes every six months from its issue date.

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

• Purchase cap: electronic purchases are limited to $10,000 per person per year.
• Lockup: you cannot cash the bond for the first 12 months.
• Early-redemption penalty: cash it before five years and you give up the last three months of interest.
• Maturity: the bond earns interest for 30 years, then ends. Your original investment plus all accrued interest is paid to you at redemption.

Interest is added to the bond’s value instead of being paid out as cash. Anyone who needs a quarterly check must redeem the bond to get it.

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

Start with whether the payment holds up. T-Mobile’s dividend has grown fast. It paid $0.65 per share per quarter through 2024, $0.88 in 2025, and $1.02 starting in late 2025. On September 24, 2026, the board declared a $1.17 per share dividend, a 14.7% increase. It goes ex-dividend on November 25, 2026, and pays on December 10, 2026.

Cash flow covers it well. 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 flexible piece. Since the program began in Q3 2022, T-Mobile has returned $44.2 billion through buybacks and $10.4 billion through dividends.

Those strains are real, though. Total debt excluding tower obligations stood at $86.9 billion as of Q2 2026. Postpaid churn rose to 0.99%, and costs from the UScellular merger and the retail overhaul are still running through results. The CFO said the company is maintaining a capital budget for spectrum auctions in 2027 and 2028, which will compete with cash for shareholder returns.

Investors have noticed. The stock is down 26.35% year-to-date and 31.91% over the past year. Telecom shares also slid after reports that SpaceX had held cell tower talks for Starlink Mobile (Forbes). Much of today’s yield comes from that falling price, not from a fatter payout.

Here is the core tradeoff. A Treasury-backed I bond cannot have its payment cut by a board, and its redemption value never falls. It also cannot grow beyond what the fixed rate and the inflation formula deliver. A T-Mobile dividend can grow, as it has every year since it started, and it still has room to grow. It can also be cut, and the shares behind it can lose value. The stock’s 11.55% drop over the past month shows how quickly that can happen.

I bonds carry risks of their own. The government guarantee covers your principal and accrued interest. It does not cover your 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 cools, the variable component resets lower, and the composite rate falls with it, while the 0.9% fixed portion stays put. Money is also tied up for a year, and you give up interest if you redeem early.

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 defer the federal tax until the earlier of the year you cash or dispose of the bonds or the year in which they mature. That lets a retiree choose the year the income shows up, ideally a low-income year. Interest may also be excluded under the Education Savings Bond Program if you redeem bonds in the same year you pay qualified higher education expenses, such as a grandchild’s tuition, subject to that program’s rules.

T-Mobile’s dividends count as qualified dividends if you meet the holding-period test. Federal law treats qualified dividend income as net capital gain under 26 U.S.C. § 1(h)(11), so it is taxed at the preferential rates for long-held assets, which are usually lower than ordinary income rates. Dividends are taxable at the state level, and you owe tax in the year you receive them, with no option to defer. The I bond’s state exemption helps where state taxes are high. In a no-income-tax state, the lower federal rate on dividends may count for more.

Who Each Option Suits

I bonds suit retirees who want inflation-linked savings that can never lose value, who can leave the money alone for at least a year (ideally five), and who live in a high-tax state or want to choose when interest becomes taxable. T-Mobile’s dividend fits income investors who want quarterly cash today and a payout with a record of growth, and who can ride out share-price declines like this year’s. Before relying on that payout, they should be comfortable with the company’s debt load and its spectrum spending plans. For readers rethinking the old withdrawal math behind either choice, we made the full case for an income-first approach in a free guide here.

Contact [email protected] for any questions or corrections.