I Bonds vs T-bills vs a CD: which keeps more?
I Bonds pay 5.51% for their first six months, which looks far ahead of a 4.33% 1-year T-bill. But cash an I Bond at 12 months and you give up the last three months of interest. On $10,000, the yearly limit, here’s what each keeps after tax.
One year, $10,000
| Option | Rate | Kept after 22% federal, 5% state | Catches |
|---|---|---|---|
| I Bonds, cashed at 12 monthsAssumes the rate stays 5.51% after the May 1 reset | 5.51% | $322 | Last 3 months’ interest forfeited. No state tax. $10,000 a year limit. |
| 1-year Treasury billU.S. Treasury, Nov 6 | 4.33% | $338 | No state tax. Can be sold any business day. |
| CFG Bank 1-year CDBest 1-year CD we track, Nov 2 | 4.65% | $339 | Taxed by your state. FDIC-insured. Penalty to cash early. |
The I Bond row is a scenario, not a quote: the rate for months 7–12 is set on May 1, 2027.
Five years: the inflation bet
Held five years or more, an I Bond has no penalty and earns its 1.40% fixed rate plus inflation. A 5-year Treasury pays 4.64% today, locked. So I Bonds come out ahead if inflation averages more than about 3.24% a year over those five years, and behind if it averages less. Both skip state tax.
Questions
Are I Bonds better than T-bills right now?
It depends how long you'll hold them. I Bonds bought through April 30, 2027 pay 5.51% for the first six months (1.40% fixed for life plus an inflation part that resets every six months). Cashed at 12 months you give up the last three months' interest, so if the rate stays the same, $10,000 keeps about $322 after 22% federal tax, against $338 from a 1-year T-bill at 4.33%. Held past five years there's no penalty, and the fixed 1.40% lasts for 30 years.
When do I Bonds beat a 5-year Treasury?
If inflation averages more than about 3.24% a year over the five years: that's today's 5-year Treasury yield (4.64%) minus the I Bond's 1.40% fixed rate. Both are taxed federally and skip state tax; I Bond tax is deferred until you cash them.
How much can I put in I Bonds?
$10,000 a year per person in electronic I Bonds through TreasuryDirect. You can't cash them in the first 12 months, and before five years you lose the last three months of interest.
I Bond rates from TreasuryDirect; Treasury yields from the U.S. Treasury’s daily curve. Interest compounding is simplified. I Bonds in detail · How to buy T-bills · CD rates.