I Bonds and T-Bills explained

U.S. Treasury securities are backed by the full faith and credit of the federal government. Among retail-friendly options, Series I savings bonds (I Bonds) and Treasury bills (T-Bills) serve different roles: I Bonds protect purchasing power over long holding periods with inflation-linked returns, while T-Bills offer short-term, liquid government debt often used as a cash alternative. Both trade through TreasuryDirect or brokerages, with distinct yield mechanics, purchase limits, and tax treatment.^[1][2]

Neither product carries FDIC insurance — they are direct obligations of the U.S. Treasury. Default risk is considered negligible for planning purposes, though interest rate and inflation assumptions still affect real returns.

How I Bond rates work

I Bonds pay a composite rate reset every May and November, combining a fixed rate (locked for the life of the bond) plus an inflation rate tied to CPI-U. The inflation component changes with each semiannual reset; the fixed rate applies to bonds purchased in that six-month window forever. Interest accrues monthly and compounds semiannually; you must hold at least 12 months, and redeeming before five years forfeits the last three months of interest.^[1]

Purchase limits are $10,000 per person per calendar year electronically via TreasuryDirect, plus up to $5,000 with federal tax refund paper bonds. I Bonds cannot be sold on secondary markets — you redeem directly with Treasury. Federal tax on interest is deferred until redemption; state and local income tax generally do not apply.^[4]

Use our I Bond and T-bill yield calculator to compare composite I Bond yields with T-Bill discount yields and bank CD rates for the same holding period.

How T-Bill yields work

T-Bills are sold at a discount to face value and mature at par — you do not receive periodic coupon payments. Your return is the difference between purchase price and $1,000 face value at maturity. Terms range from four weeks to one year. Yields are often quoted as bank discount yield or investment yield (bond equivalent yield); the investment yield is better for comparing with CDs or savings APY.^[2]

T-Bills are highly liquid: you can hold to maturity or sell on the secondary market before maturity (market price may differ from purchase price). Interest income is exempt from state and local tax but taxable federally in the year the bill matures or is sold.^[4]

The APR and APY converter helps translate quoted discount rates into comparable annual yields when stacking T-Bills against other cash options.

When I Bonds beat CDs — and when they do not

I Bonds shine when inflation is elevated and you have dollars you will not need for at least one year (ideally five). The inflation floor protects real purchasing power better than fixed-rate CDs during rising-CPI periods. When inflation falls, I Bond composite rates drop too — the fixed rate on newly issued bonds may be low or zero.

CDs from banks and credit unions offer predictable APY, FDIC or NCUA insurance, and simpler liquidity terms for short goals. Compare using the CD calculator and our CD vs. high-yield savings guide. A CD ladder spreads maturity dates for rolling liquidity without relying on Treasury purchase caps.

Buying through TreasuryDirect

TreasuryDirect.gov is the primary portal for I Bonds and direct T-Bill purchases. You need an account, linked bank account, and patience with the setup process. Auction schedules for T-Bills are published in advance; competitive and noncompetitive bids have different rules for large purchases.^[3]

Brokerages also sell T-Bills and Treasury funds for investors who prefer a single dashboard with stocks and bonds. Funds may charge expense ratios but simplify rolling maturities. For inflation protection beyond I Bond caps, Treasury Inflation-Protected Securities (TIPS) trade in brokerage accounts with market price volatility — a different tool than I Bonds.

Fitting Treasuries into a cash plan

Match instrument to timeline: T-Bills and money-market Treasuries for near-term expenses within a year; I Bonds for inflation-protected savings you can lock away five or more years; bank high-yield savings for emergency funds needing instant transfer. Idle cash loses purchasing power over time — see our inflation and savings guide for why long-term money belongs in growth assets, while short-term reserves belong in safe, predictable vehicles like Treasuries or insured deposits.

Revisit allocations when the Treasury announces new I Bond rates each May and November, and when T-Bill auction yields shift with Federal Reserve policy. Small differences in yield compound meaningfully on large cash balances over multi-year horizons.