I Bonds vs Treasury Bills: What High Earners Should Know

DEFINITION

I Bond

A US Treasury savings bond whose interest rate adjusts every six months based on the Consumer Price Index (CPI). I bonds are purchased directly from TreasuryDirect.gov, capped at $10,000 per person per year, and require a minimum 12-month holding period.

DEFINITION

Treasury Bill (T-bill)

Short-term US government debt securities maturing in 4, 8, 13, 17, 26, or 52 weeks. T-bills are sold at a discount to face value — you buy a $1,000 bill for $980, and collect $1,000 at maturity. The difference is your interest.

DEFINITION

Composite Rate

The all-in I bond interest rate, combining a fixed rate (set at purchase and held for the bond's life) and a variable inflation adjustment (reset every May and November based on CPI-U).

I Bonds: The Inflation Hedge With a Cap

I bonds were designed to protect purchasing power. Their interest rate is tied to the Consumer Price Index — when inflation runs hot, I bond yields rise automatically. When inflation is low, yields fall. The bond cannot return negative nominal interest, so your principal is always protected.

The catch: you can only buy $10,000 per year through TreasuryDirect.gov, plus up to $5,000 from a tax refund. And you cannot touch the money for 12 months.

For a high earner with significant investable assets, this cap matters. If you have $200,000 in cash, you can put 5% of it into I bonds in a given year. The inflation protection is real, but at scale, I bonds are a supplement — not a complete cash management strategy.

When I bonds make sense:

• You have cash you won’t need for at least 12 months
• Inflation is running significantly above the current T-bill rate
• You want to diversify your fixed-income holdings
• You’re in a high state-income-tax jurisdiction (state tax exemption adds real value)

T-Bills: Flexibility at Competitive Yields

Treasury bills are short-duration US government debt. You choose your maturity — 4 weeks, 8 weeks, 13 weeks, 26 weeks, or 52 weeks — and collect the yield at maturity. There’s no purchase cap, no lockup penalty, and maturities can be laddered to create predictable cash flow.

When the Federal Reserve holds rates at elevated levels, 3-month and 6-month T-bill yields have often exceeded what I bonds pay outside of high-inflation periods. This is not always true — the comparison shifts with the rate and inflation environment — but T-bills have consistently offered competitive yields over recent years.

When T-bills make sense:

• You need flexibility — you may want the cash back in 3, 6, or 12 months
• You want to invest more than $10,000–$15,000 in a year
• You prefer to manage everything through your brokerage account rather than a separate TreasuryDirect account
• You want to ladder maturities to create regular cash inflows

Practical Cash Management for High Earners

The standard recommendation for liquid reserves is 3-6 months of expenses in cash. For a high earner, that might be $30,000–$80,000 — too much to park in a checking account where it earns nothing but too important to lock away entirely.

A reasonable tiered approach:

Tier 1 — Immediate liquidity (1-2 months expenses): High-yield savings account. No restrictions, accessible within a business day.

Tier 2 — Near-term reserve (2-4 months expenses): T-bills on a rolling ladder (4-week or 13-week). Earns Treasury yields with predictable access windows.

Tier 3 — Inflation hedge (amounts within annual limits): I bonds. Set and forget for at least 12 months. Best used for money you’re confident you won’t need short-term.

Thalvi aggregates all of these alongside your investment accounts — so you see your full picture, not just the brokerage slice.

The Tax Angle

Both I bonds and T-bills are exempt from state and local income taxes. For someone in a state with a 9-13% income tax rate — California, New York, Oregon — this exemption adds meaningful after-tax yield relative to corporate bonds or savings account interest.

I bond interest has an additional federal deferral advantage: you don’t pay federal tax on I bond interest until you redeem the bond. If you’re in a high federal bracket now and expect to be in a lower bracket at redemption (say, in early retirement), that deferral has value. T-bill interest is recognized in the year the bill matures — no deferral.

The Decision

Neither instrument is clearly superior at all times. The trade-off is simple:

Choose I bonds if you want inflation-linked returns, have a long enough horizon to tolerate the 12-month lockup, and the current I bond rate exceeds or is close to T-bill rates.

Choose T-bills if you need flexibility, want to deploy more than the I bond annual cap, or if T-bill yields are meaningfully higher than the current I bond composite rate.

Check TreasuryDirect.gov for current I bond rates (updated each May and November) and compare to current 26-week T-bill auction yields before deciding how to split your cash reserves.