Treasury bills and Series I savings bonds are both direct obligations of the U.S. federal government. Neither requires FDIC insurance — the U.S. government's creditworthiness is the backing. Both are exempt from state and local income taxes. Both are available to individual investors at TreasuryDirect.gov with no fees or commissions. Beyond those shared traits, the two instruments serve meaningfully different savings goals.
What are Treasury bills?
A Treasury bill is a short-term debt security issued by the U.S. Department of the Treasury. New T-bills are auctioned weekly for terms of 4, 8, 13, 17, 26, and 52 weeks. The pricing mechanism is simple: T-bills sell at a discount to face value and are redeemed at full face value at maturity. A $1,000 face-value bill might sell for $979 at auction — the $21 difference is your return for the holding period, taxable as ordinary income.
Individual investors purchase T-bills through TreasuryDirect.gov starting at $100 using a non-competitive bid — meaning you accept whatever rate the auction establishes rather than specifying a desired yield. Purchases at TreasuryDirect are held to maturity in your account. If you need to exit before maturity, T-bills bought through a brokerage account can be sold on the secondary market.
Structural benefits of T-bills:
- Yield tracks closely to the Federal Reserve's short-term rate target — see the Federal Reserve H.15 for current yields
- No lockup — 4-week T-bills mature in 28 days; you can roll them continuously
- Interest is exempt from state and local income taxes
- No minimum holding period; the term you choose determines when funds return
- Available through most major brokerage accounts for secondary-market liquidity
What are Series I savings bonds?
A Series I savings bond is a U.S. Treasury savings bond whose interest rate is tied to inflation. The composite rate has two components: a fixed rate set at the time of purchase (which stays constant for the bond's 30-year life) and a semiannual inflation component based on the Consumer Price Index for All Urban Consumers (CPI-U). The inflation component resets every May 1 and November 1 for newly issued bonds — and every six months from your issue date for bonds you hold.
When the CPI rose sharply in 2022, I bond composite rates reached 9.62%, driving enormous demand. As inflation moderated, composite rates declined as well. The current composite rate is always posted at TreasuryDirect.gov — I bonds.
Key rules for I bonds:
- Annual purchase limit: $10,000 per individual per Social Security number (electronic bonds)
- Additional $5,000/year via paper I bonds by directing a federal tax refund via IRS Form 8888
- 1-year lockup: you cannot redeem an I bond in its first 12 months under any circumstances
- 3-month interest penalty if redeemed before 5 years; no penalty at or after 5 years
- Interest accrues monthly but compounds and posts every 6 months
- Only available at TreasuryDirect.gov — not through brokerages or secondary markets
How the tax treatment differs
Both T-bills and I bonds are exempt from state and local income taxes. Per IRS Publication 550, this exemption stems from 31 USC 3124 — the statute that prohibits states and localities from taxing U.S. government obligations. For savers in California, New York, New Jersey, Oregon, or other high-income-tax states, this exemption makes the after-tax yield on Treasury instruments meaningfully higher than an equivalent pre-tax rate on a bank account.
Federal income tax treatment is where the two instruments diverge:
T-bills: Interest is taxable as ordinary income in the year the bill matures. A 26-week bill bought in January 2026 and maturing in July 2026 generates income reportable on your 2026 federal return. No deferral option exists.
I bonds: Interest accrues monthly but the federal tax obligation is deferred until you redeem the bond or it reaches 30-year maturity — whichever comes first. This deferral can be substantial over multi-year holds. If you redeem in a year when your income is lower — after retiring, during a sabbatical, or following a business exit — you pay the tax at a potentially lower marginal rate. You may also elect to report accrued I bond interest annually, but most savers prefer the deferred method.
Education bonus: If I bond proceeds pay qualified higher education expenses for yourself, your spouse, or a dependent, the interest may be entirely excluded from federal income — subject to income phase-outs. See IRS Publication 550 for current exclusion thresholds.
T-bills vs. I bonds: head-to-head
| T-Bill | I Bond | |
|---|---|---|
| Rate type | Fixed for term (market rate) | Variable — inflation-indexed |
| Liquidity | Flexible (4–52 weeks; secondary market via brokerage) | 1-year lockup; 3-month penalty before 5 years |
| Annual purchase limit | None | $10,000/person (electronic) |
| State/local tax | Exempt | Exempt |
| Federal tax timing | Year of maturity | Deferred to redemption |
| Inflation protection | No | Yes |
| Secondary market | Yes (via brokerage) | No — TreasuryDirect only |
| Minimum purchase | $100 (TreasuryDirect) | $25 (electronic) |
When T-bills fit better
T-bills are the right tool when:
- You need access to the money within 12 months — the I bond lockup rules this out
- Your savings goal exceeds $10,000 — T-bill purchases have no annual limit
- You want rate certainty: a 13-week T-bill locks in the auction yield for exactly 91 days
- You're supplementing an emergency fund — liquidity is non-negotiable for that purpose
- Current T-bill yields exceed the I bond composite rate — check TreasuryDirect.gov and Federal Reserve H.15 to compare
When I bonds fit better
I bonds are the right tool when:
- You're building savings for a goal 1–5 years out that you can commit to not touching for at least a year
- Inflation is outpacing current T-bill auction yields, and the composite rate is more attractive
- You want to defer federal income tax — useful if you anticipate a lower-bracket year ahead
- You're saving for education expenses and may qualify for the interest exclusion
- You want to max out your inflation-protected allocation before putting additional savings in T-bills or a HYSA
How to buy at TreasuryDirect.gov
Step 1: Open a TreasuryDirect account. Go to TreasuryDirect.gov and select "Open an Account." You'll need your Social Security number, U.S. bank routing and account numbers (for purchases and redemptions), and an email address. Accounts are free and there are no custody fees.
For T-bills: In your account dashboard, navigate to "BuyDirect" → "Bills" → select your maturity term → enter a dollar amount (minimum $100 in $100 increments). Submit a non-competitive bid. The system confirms the bid; you receive the auction rate once the auction settles, typically the following business day. Your T-bill will appear in your account and mature automatically, with proceeds deposited to your linked bank account.
For I bonds: Navigate to "BuyDirect" → "Series I" → enter your purchase amount (minimum $25, maximum $10,000 per calendar year). The purchase executes immediately at the current composite rate, which applies for your first six months. Subsequent six-month periods adjust to the then-current composite rate.
T-bills via brokerage: Fidelity, Schwab, Vanguard, and most major brokerages let you participate in new-issue Treasury auctions and also let you buy and sell T-bills on the secondary market — providing more liquidity than TreasuryDirect's hold-to-maturity structure. For savers who prefer to consolidate all holdings in one brokerage account, this is a practical alternative.
Related: Why Traditional Savings Accounts Are Costing You Money in 2026 | How to Choose a High-Yield Savings Account in 2026 | How to Start Investing: A Beginner's Framework for 2026
ClearValue Lending is a financial education platform. Nothing on this page constitutes personalized investment advice. Treasury securities involve interest-rate risk and are subject to federal income tax. Consult a licensed financial advisor or CPA before making investment decisions.
