Building wealth is not only about chasing growth. Money you will need in the next few years, like a home down payment, a car fund or a cash cushion, needs a safer place to sit while it earns something. Two options many savers look at are Series I savings bonds and Treasury bills. Here is how I bonds and T-bills work, how they differ and where each can fit in your wealth plan.
Flex Fuel does not promise returns. This article is general education, not investment, tax or legal advice. Rates change, so check current figures at TreasuryDirect before you buy, and talk with a licensed professional about your situation.
What is an I bond?
A Series I savings bond is a U.S. savings bond sold by the Treasury. According to TreasuryDirect's I bonds page, the rate on an I bond combines a fixed rate and an inflation rate. The fixed rate never changes. The inflation rate resets every six months, so the overall rate can go up or down.
Key facts from TreasuryDirect:
- I bonds earn interest monthly, and interest is compounded semiannually, so every six months the rate is applied to a new, larger principal.
- An I bond earns interest for 30 years unless you cash it in sooner.
- You can cash it in after 12 months. If you cash it in before five years, you lose the last three months of interest. Treasury's own example: cash in after 18 months and you get the first 15 months of interest. The regulation behind this is 31 CFR 359.7.
- As of January 1, 2025, I bonds are sold only electronically, through a TreasuryDirect account.
- The minimum purchase is $25, and you can buy any amount above that to the penny.
How much you can buy
TreasuryDirect's page on how much you can spend says one Social Security Number or Employer Identification Number can buy up to $10,000 in electronic I bonds each calendar year. Gift bonds count toward the recipient's limit, not the giver's. There is no limit on the total amount of savings bonds a person can own.
How I bonds are taxed
Per TreasuryDirect, I bond earnings are subject to federal income tax but not state or local income tax. You can choose to report the interest each year or wait until you cash in the bond. If you use the money for qualified higher education expenses, you may not owe tax on the earnings, subject to IRS rules.
What is a Treasury bill?
A Treasury bill, or T-bill, is short-term government debt. TreasuryDirect's Treasury bills page explains:
- Bills are sold for terms of 4, 6, 8, 13, 17, 26 and 52 weeks.
- They are sold at a discount or at face value. When the bill matures, you are paid its face value. For bills, the "interest" is the difference between what you paid and the face value.
- The rate is set at auction. Auctions happen weekly for most terms and every four weeks for 52-week bills.
- The minimum purchase is $100, in $100 increments, up to $10 million with a non-competitive bid.
- You can hold a bill until it matures or sell it before it matures.
- Interest is subject to federal tax but not state or local tax.
A simple, hypothetical example
This example is hypothetical, with made-up numbers. It is not a current rate or a promise of returns. Say you buy a 26-week bill with a $1,000 face value for $980. When it matures, you receive $1,000. Your $20 gain is the interest, and it is subject to federal income tax.
I bonds vs. T-bills: side by side
| I bonds | Treasury bills | |
|---|---|---|
| How you earn | Fixed rate plus inflation rate, reset every 6 months | Buy below face value, receive face value at maturity |
| Time frame | Hold at least 12 months; up to 30 years | 4 to 52 weeks |
| Early access | 3-month interest penalty if cashed before 5 years | Can sell before maturity |
| Minimum | $25 | $100 |
| Purchase cap | $10,000 electronic per SSN or EIN per year | $10 million per non-competitive bid |
| State and local tax | Not taxed | Not taxed |
Where each one can fit in your wealth plan
Money you might need soon
Because you cannot cash in an I bond during its first 12 months, it is a poor home for money you might need next month. Keep your first layer of savings in an insured bank or credit union account, then consider longer-term tools. Our guide to building an emergency fund explains how to size that cushion.
Savings with a deadline
If you know you need money on a date, such as a down payment in nine months, a T-bill that matures before that date can match the timeline. For homebuying goals, see our guide to closing costs for first-time buyers so you save for the full amount.
Protecting buying power
I bonds are built to respond to inflation, which can help protect the buying power of money you plan to hold for a few years or more. The limits and penalty rules mean it works best with a clear holding plan.
Long-term growth
Neither option is designed to replace long-term investing for retirement or generational wealth. Over decades, many families use diversified investments for growth. Our guides to index funds for beginners, compound interest and a generational wealth starter plan cover that side. If you run a business, our guide to investing business profits shows how to put surplus cash to work.
Watch for impostors
TreasuryDirect keeps a section on frauds, phonies and scams. Buy only through the official TreasuryDirect website or a bank or broker you trust, and be wary of anyone who asks you to send money to "buy Treasuries" for you.
Get your credit ready alongside your savings
Saving for a home or another big goal usually goes hand in hand with financing. Before you apply for a mortgage or loan, check your credit. Flex Fuel clients use SmartCredit to see their credit reports and scores in one place. Tracking your net worth as your savings grow also helps you see your progress.
Not sure where your savings should sit while you work toward a big goal? Book a time to talk through your savings plan and credit with us.
How Flex Fuel helps
Flex Fuel works with clients nationwide (we are based in Atlanta) on credit, budgeting and wealth-building plans, so savings goals and credit goals move together. We only take actions you authorize. Explore our services and see how our guarantee works.
Building savings for your next big goal? Book a complimentary strategy session. We will review your credit and savings plan with you and map out your next steps.
Book a Consultation ›Frequently asked questions
Can I lose money on an I bond?
Treasury's rule at 31 CFR 359.7 says the early-redemption penalty will not reduce an I bond's value below its issue price. You do give up three months of interest if you cash in before five years.
How long do I have to hold an I bond?
At least 12 months. After five years, there is no three-month interest penalty.
Are T-bills taxed?
T-bill interest is subject to federal income tax but not state or local income tax, according to TreasuryDirect.
Should I buy I bonds or T-bills?
It depends on when you need the money and how you want to earn. T-bills fit short, defined timelines; I bonds suit money you can leave for at least a year. A licensed professional can help you decide.
