I Bonds vs Treasury Bills vs CDs: Where to Put Your Cash Right Now

From 2008 to 2022, this conversation was kind of pointless. High-yield savings accounts yielded 0.5%, T-bills yielded near zero, CDs were barely above zero, and I bonds had a fixed rate component of 0%. Cash management was about not losing purchasing power to fees, not optimizing yield.

That changed fast when the Fed raised rates aggressively starting in 2022. By late 2023, you could earn 5%+ on T-bills, high-yield savings, and CDs. I bond composite rates briefly touched 9.62% in May 2022 during the inflation spike.

In 2026, the rate environment has settled. The Fed has cut from peak levels but rates are still meaningfully positive compared to the zero-rate era. The right answer for your cash depends on what you're optimizing for: yield, tax efficiency, liquidity, or predictability. And the answer is different for different pots of money.

This isn't about chasing the highest number on a comparison table. It's about matching the right instrument to the specific job the money needs to do.

Series I Savings Bonds are issued by the US Treasury and tied to inflation. The composite rate has two components: a fixed rate set at purchase that stays with the bond for its 30-year life, and a variable rate that resets every six months based on CPI-U (the inflation index).

The current I bond rates (updated November 2025, effective through April 2026): the composite rate is approximately 3.11%. That breaks down as a fixed rate of 1.20% plus the inflation adjustment. The fixed rate of 1.20% is actually meaningful — during the zero-rate era from 2010-2021, the fixed rate was 0.00% to 0.10%. A 1.20% fixed rate means this bond will always beat inflation by at least 1.2 percentage points for as long as you hold it, which is a real promise.

The tax treatment is genuinely advantageous. I bond interest is: — Exempt from state and local taxes — Federal tax deferred until you redeem (or the bond matures at 30 years) — Potentially exempt from federal tax if used for qualified education expenses

The state tax exemption alone adds real after-tax yield in high-tax states. California residents pay 13.3% state income tax on ordinary income — skipping state tax on I bond interest is worth roughly 0.4% in after-tax yield at that rate.

The purchase limit is the critical constraint: $10,000 per person per year through TreasuryDirect.gov, plus $5,000 of any tax refund in paper bonds. Couples can do $20,000/year total ($10K each). You can also purchase through business entities separately.

Liquidity constraints: you can't touch I bonds for 12 months after purchase. At all. After 12 months you can redeem, but you forfeit the last 3 months of interest if you redeem before 5 years. After 5 years, full redemption, no penalty.

So: if you're building long-term inflation protection and you have up to $10,000-20,000 that you don't need for at least 12 months (ideally 5 years), I bonds are probably the best instrument available. The combination of inflation protection, federal tax deferral, and state tax exemption makes them uniquely attractive for the right use case. But the $10K annual limit caps the impact, and the liquidity restriction makes them wrong for emergency funds or money you might need.

Treasury bills are short-term government debt — maturities from 4 weeks to 52 weeks. They're issued at a discount and pay face value at maturity. If you buy a 26-week T-bill with a face value of $10,000 for $9,740, you earn $260 at maturity — that's your interest.

Current T-bill yields (as of early 2026): the 4-week T-bill yields approximately 4.2-4.4%. The 13-week (3-month) T-bill is around 4.1-4.3%. The 26-week (6-month) T-bill is around 4.0-4.2%. The 52-week T-bill is slightly lower, around 3.9-4.1%. (Rates shift constantly — check TreasuryDirect.gov or your brokerage for current auction results.)

Like I bonds, T-bill interest is exempt from state and local taxes. That's a consistent advantage over CDs and most savings accounts in high-tax states.

T-bills can be purchased through: — TreasuryDirect.gov directly (no fees, non-marketable) — Brokerage accounts (Fidelity, Schwab, Vanguard — secondary market, $1,000 minimum) — Treasury Money Market Funds (SPAXX at Fidelity, VMFXX at Vanguard) which hold short-term Treasuries

The liquidity story: T-bills purchased through a brokerage can be sold in the secondary market before maturity. Prices fluctuate (though minimally for short-term bills), so you could receive slightly more or less than purchase price. Treasury money market funds offer same-day liquidity.

For cash that might be needed within 6-12 months — an emergency fund (though generally a HYSA works here), a house down payment fund, or operating capital for a business — T-bills or a Treasury money market fund are excellent. Liquid, backed by the US government, no credit risk, and the state tax exemption is real.

The T-bill ladder strategy: buying rolling T-bills of staggered maturities (4-week, 13-week, 26-week all purchased the same week) gives you liquidity at each maturity while averaging your rate over the yield curve. As each bill matures, you decide: redeem to cash, or roll into a new T-bill. It's a simple, effective cash management approach.

CDs are straightforward: you deposit money at a bank or credit union for a fixed term, and they guarantee a fixed interest rate. At maturity, you get principal plus interest.

Current CD rates (early 2026): Online banks and credit unions are offering 12-month CDs at approximately 4.3-4.8%. 6-month CDs: 4.2-4.6%. 24-month CDs: 4.0-4.5%. High-yield savings accounts at the same institutions are yielding 4.0-4.5%. Rates vary significantly by institution — Ally, Marcus, Discover, Synchrony, and credit unions often beat major banks by 1-2 percentage points.

CDs are FDIC-insured up to $250,000 per depositor per institution. Spreading across multiple institutions multiplies your coverage.

The downside is the same as I bonds but less severe: early withdrawal penalties. Typical penalty for a 12-month CD is 3 months of interest. On a 24-month CD, it's often 6 months of interest. This doesn't wipe out your principal — you still get it back — but you give up meaningful earned interest if you need the money early.

No-penalty CDs are available (Marcus by Goldman Sachs has historically offered them, as have some credit unions), though their rates are usually slightly lower than standard CDs. The tradeoff: full liquidity, slightly less yield.

Where CDs beat T-bills: the yield spread. Right now, 12-month CDs at the best online banks are paying roughly 4.5-4.8%, while the 52-week T-bill is at 3.9-4.1%. That's a 40-60 basis point yield premium. On $100,000, that's $400-600 extra per year — real money.

Where T-bills beat CDs: state tax exemption. In California at 13.3%, a T-bill yielding 4.1% has an after-tax equivalent of about 4.7% for a state resident. Suddenly the CD's nominal yield premium shrinks or disappears. In zero-income-tax states (Texas, Florida, etc.), CDs' yield advantage is fully realized and they're often the better call.

CD laddering — buying CDs of different maturities (3-month, 6-month, 12-month, 18-month, 24-month) simultaneously — gives you rolling liquidity as each CD matures while keeping the bulk of funds in higher-yielding longer-term CDs. Classic strategy, still effective.

No cash comparison is complete without acknowledging the competition: HYSA and money market funds.

High-Yield Savings Accounts (HYSA) at online banks — Ally, Marcus, Discover, SoFi — are currently yielding roughly 4.0-4.5%. Rates float with the federal funds rate, which is the main risk: if the Fed cuts aggressively, HYSA rates drop fast. No penalty for withdrawals, FDIC insured, simple to use.

Where they lose to the alternatives: no state tax exemption, variable rate (you don't lock in a yield), and the highest rates require you to maintain the account actively. Some HYSA rates drop significantly if you let the account sit without regular activity. Read the fine print.

Money Market Funds (not to be confused with bank money market accounts, which are different products): these are mutual funds that invest in short-term government securities or corporate paper. SPAXX (Fidelity Government Money Market) currently yields around 4.2%. VMFXX (Vanguard Federal Money Market) is similar. Both hold mostly Treasuries, giving you same-day liquidity with a yield close to the T-bill rate — and because the underlying holdings are Treasuries, a significant portion of the yield is state-tax-exempt.

For pure liquidity with good yields, a government money market fund often threads the needle between T-bills (higher yield, slightly less liquid) and HYSA (fully liquid, no state tax break).

This is where the comparison gets genuinely decisive for some investors, and where people consistently underestimate the differences.

I Bonds: — Federal: deferred until redemption (you choose when to pay tax) — State: fully exempt — Potential education exclusion if income-eligible

Treasury Bills / Treasury Notes: — Federal: taxable in year earned — State: fully exempt

CDs: — Federal: taxable in year earned — State: fully taxable

High-Yield Savings Accounts: — Federal: taxable in year earned — State: fully taxable

The state tax exemption on Treasuries (and I bonds) is the most consistently underweighted factor in these comparisons. Let's do the math for a California resident in the 22% federal bracket and 9.3% California state bracket (combined marginal rate of roughly 31.3%).

CD at 4.8% nominal: after-tax yield = 4.8% × (1 - 0.313) = 3.30% T-bill at 4.2% nominal: after-tax yield = 4.2% × (1 - 0.22) = 3.28% (federal only, state exempt)

The T-bill with a nominally lower rate produces almost the same after-tax yield in California as the higher-rate CD. And if the T-bill rate is 4.3%? The T-bill wins after-tax despite the lower headline number.

For New York City residents who pay state AND city income tax (combined potentially 14%+), the Treasuries advantage is even larger.

For Texas or Florida residents at 0% state income tax: the CD's full yield premium is retained. CDs are more competitive there.

This isn't a technicality — it's a real after-tax yield difference worth doing the math on before committing.

Here's the framework I'd actually use, because 'which one is best' is the wrong question. The right question is 'what job does each pot of money need to do?'

Emergency fund (3-6 months of expenses, must be immediately accessible): High-yield savings account or Treasury money market fund. The emergency fund's one job is to be there when you need it, immediately. I bonds are wrong here (12-month lockup). CDs are wrong here (early withdrawal penalty). HYSA or government money market fund — pick one.

Savings for a known expense in 6-18 months (house down payment, car purchase, planned renovation): Treasury bills laddered to your timeline, or a CD matching your expected need date with a no-penalty CD as backup. Lock in a rate, match the maturity to your timeline, collect the full yield.

Long-term inflation hedge for money you won't touch for 5+ years: I bonds, maxed out annually. $10,000 per person per year, buy every year, let them compound. The fixed rate of 1.20% above inflation is the best guaranteed real return available for small investors in the US right now.

Cash in a taxable brokerage you want to deploy to stocks over time: Treasury money market fund (SPAXX or VMFXX). Earning 4%+ while you wait, liquid for immediate deployment, state tax exempt.

High-income investors in high-tax states with 12-24 month flexibility: T-bills on a rolling ladder. The state tax exemption is too valuable to ignore.

High-income investors in zero-tax states with 12-24 month flexibility: shop for the best CD rate. The yield premium over T-bills is fully yours to keep.

The specific numbers: if you have $100,000 to manage across these buckets, a reasonable split might be $20,000 in HYSA (emergency fund + near-term expenses), $50,000 in a T-bill ladder or Treasury money market (medium-term savings), $20,000 in I bonds (inflation hedge, takes 2 years to accumulate at $10K/year per person), and $10,000 in a 12-18 month CD at the best rate you can find. That's not the only right answer — but it's a defensible allocation that covers liquidity, yield, and inflation protection simultaneously.

I Bonds — TreasuryDirect.gov is the only place to buy them. The website is notoriously clunky and the account setup takes days due to identity verification and bank linking. Worth doing once. You can't hold I bonds in a brokerage account or IRA — they exist only on TreasuryDirect. The $10,000 annual limit per SSN is firm. You can gift I bonds to a spouse in the same year (both the gift purchase and recipient count toward separate limits if structured correctly — but the rules are detailed enough to research separately).

Treasury Bills — Available on TreasuryDirect.gov (non-marketable, must hold to maturity) or through any major brokerage account (Fidelity, Schwab, Vanguard, etc.) in marketable form (can sell before maturity). Brokerage purchase is far more convenient and gives you secondary market flexibility. Minimum purchase: $100 on TreasuryDirect, $1,000 at most brokerages. T-bills don't pay periodic interest — you buy at a discount and receive face value at maturity.

CDs — Available at any bank, credit union, or online bank. Available in brokerage accounts as 'brokered CDs' (issued by banks, held in your brokerage account, FDIC insured, tradeable on secondary market). Brokered CDs offer more flexibility but watch for thin markets on the secondary side. Direct CDs from the bank are simpler and often have better rates at competitive online banks.

One more thing: all three are available in IRAs (except I bonds). Holding Treasury bills or CDs inside an IRA is reasonable for the fixed income portion of a portfolio — the state tax exemption is irrelevant inside an IRA (no current taxes anyway), but the FDIC insurance and guaranteed return are attractive for near-retirees who need stability in their IRA fixed income allocation.