Treasury Bills and I Bonds Explained
Treasury bills and I bonds let you lend money to the US government and earn interest that's free from state and local income tax. Here's how each one works, how to buy them, their limits and when they make sense for your savings.
By Pond.com editors Updated 3 min read
Quick answer
- Treasury bills are short-term loans to the US government, lasting from 4 weeks to 52 weeks.
- I bonds are savings bonds that earn a rate tied to inflation, reset every six months.
- Interest on both is free from state and local income tax, but federal tax applies.
- You can buy up to $10,000 of electronic I bonds per person each year, only at TreasuryDirect.gov.
- I bonds can't be cashed for a year, and you lose three months' interest if you cash them within five years.
When you buy a Treasury bill or an I bond, you're lending money to the US government, which pays you interest. They're among the safest places to keep savings, and the interest is free from state and local income tax.
This article is general information, not financial advice. Rates change often; check current rates before you buy.
Treasury bills
- Terms: 4, 6, 8, 13, 17, 26 and 52 weeks.
- How they pay: you buy at a discount, for example paying a little under $1,000, and get the full $1,000 when the bill matures. The difference is your interest.
- Minimum: $100.
- Rate: fixed for the term, set at auction.
- Taxes: free from state and local tax; federal tax applies.
- Where to buy: TreasuryDirect.gov or most brokerages.
Through a brokerage, you can usually sell before maturity, though the price may be a little higher or lower than you paid. Many brokerages also let you roll bills over automatically when they mature.
I bonds
- Rate: a fixed part plus an inflation part, reset every May and November. When inflation rises, so does the rate.
- Limit: $10,000 in electronic I bonds per person, each calendar year.
- Lock-up: you can't cash them for 12 months.
- Early cash-in: if you cash them before five years, you lose the last three months of interest.
- Interest: earned for up to 30 years and added to the bond's value.
- Taxes: free from state and local tax; federal tax can be paid each year or when you cash them. They may be tax-free if used for qualified education costs, subject to income limits.
- Where to buy: only at TreasuryDirect.gov.
When they make sense
| You want | Consider |
|---|---|
| A safe, fixed return for under a year | Treasury bills |
| To beat inflation over a few years | I bonds |
| Money you might need any day | A high-yield savings account instead |
| Lower taxes in a high-tax state | Treasury bills or I bonds |
Buying at TreasuryDirect
- Open an account at TreasuryDirect.gov with your Social Security number and bank account.
- Choose what to buy and the amount.
- Pick a date; the money comes from your bank account automatically.
- Keep your login details safe, and set up the account recovery options.
Common questions
You can buy them directly from the government at TreasuryDirect.gov, with a minimum of $100, or through most brokerage accounts. Buying through a brokerage is often easier if you already have an account, and it lets you sell before maturity if you need to.
No. The option to buy paper I bonds with a federal tax refund ended in 2025. Electronic I bonds are still available at TreasuryDirect.gov.
It depends on rates and where you live. Treasury bill interest isn't taxed by your state or city, which can make them worth more after tax in high-tax states. Compare the after-tax return, and check the CD's early withdrawal penalty.