T-bills: park short-term cash (1-12 months) at competitive, state-tax-exempt yields with near-zero risk I-bonds: ideal first $10,000-$20,000 of inflation protection, simple, no phantom income, no duration risk TIPS: larger inflation hedges, particularly in retirement accounts where phantom income isn't a concern Nominal Treasuries: when you want to lock in a real yield and have a specific maturity target for a cash need All four work best in combination, a well-structured fixed income allocation often includes multiple maturities

T-bills beat most savings accounts and money market funds on an after-tax basis in high-tax states I-bonds are the simplest inflation hedge available to retail investors, start here before TIPS Hold TIPS in tax-advantaged accounts to avoid the annual phantom income tax problem TreasuryDirect.gov is free but clunky, many investors prefer buying Treasuries through Fidelity, Vanguard, or Schwab Short-term Treasuries reduce portfolio risk without sacrificing meaningful return relative to bank deposits

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Investing & Markets

Treasuries, I-Bonds, and TIPS: The Government Bond Toolkit

US government securities range from ultra-short T-bills to 30-year bonds and inflation-linked savings bonds. Knowing when to use each can materially improve your after-tax, after-inflation returns on safe money.

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The Treasury Spectrum

Treasury bills (T-bills): maturities of 4 to 52 weeks, sold at a discount and redeemed at face value
Treasury notes: maturities of 2, 3, 5, 7, and 10 years, pay semiannual coupons
Treasury bonds: 20 and 30-year maturities, higher yields, significant duration and price risk
All Treasuries are exempt from state and local income taxes, a meaningful advantage for investors in high-tax states
You can buy Treasuries at auction with no fees through TreasuryDirect.gov or in the secondary market through any brokerage

T-Bills: The Emergency Fund Upgrade

4-week and 13-week T-bills consistently yield more than most savings accounts and are state-tax exempt
Rolling T-bills (auto-reinvesting at maturity) provides a near-liquid, high-yield cash equivalent
Treasury money market funds hold T-bills professionally and offer same-day liquidity, simpler than buying directly
T-bill yields are quoted as annualized discount rates; a 5% discount rate on a 13-week bill is approximately 5.06% annualized return
Ideal for Tier 2 emergency reserves or any money you'll need within 3-12 months

I-Bonds: The Inflation Hedge for Savers

Series I savings bonds earn a composite rate: a fixed rate (set at purchase) plus an inflation adjustment that resets every 6 months based on CPI
I-bonds cannot lose value in nominal terms, the floor is 0%, protecting against deflation
Purchase limit is $10,000 per person per year on TreasuryDirect.gov, plus up to $5,000 via a tax refund
Must be held at least 12 months; early redemption within 5 years forfeits the last 3 months of interest
Federal taxable, state/local exempt, you can defer tax until redemption, useful for managing income brackets

TIPS: Inflation Protection in Larger Quantities

TIPS principal adjusts with CPI, if inflation is 3%, your principal grows 3% and your coupon is paid on the larger amount
No purchase limits, available in 5, 10, and 30-year maturities through TreasuryDirect or any brokerage
The inflation adjustment is taxable each year as ordinary income even before you receive it, called 'phantom income'
Best held in tax-advantaged accounts (IRA, 401k) to avoid annual phantom income tax
TIPS mutual funds and ETFs (like VIPSX or SCHP) provide diversification without maturity concentration

When to Use Each

T-bills: park short-term cash (1-12 months) at competitive, state-tax-exempt yields with near-zero risk
I-bonds: ideal first $10,000-$20,000 of inflation protection, simple, no phantom income, no duration risk
TIPS: larger inflation hedges, particularly in retirement accounts where phantom income isn't a concern
Nominal Treasuries: when you want to lock in a real yield and have a specific maturity target for a cash need
All four work best in combination, a well-structured fixed income allocation often includes multiple maturities

Key Takeaways

T-bills beat most savings accounts and money market funds on an after-tax basis in high-tax states
I-bonds are the simplest inflation hedge available to retail investors, start here before TIPS
Hold TIPS in tax-advantaged accounts to avoid the annual phantom income tax problem
TreasuryDirect.gov is free but clunky, many investors prefer buying Treasuries through Fidelity, Vanguard, or Schwab
Short-term Treasuries reduce portfolio risk without sacrificing meaningful return relative to bank deposits

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The Treasury Spectrum

Treasury bills (T-bills): maturities of 4 to 52 weeks, sold at a discount and redeemed at face value
Treasury notes: maturities of 2, 3, 5, 7, and 10 years, pay semiannual coupons
Treasury bonds: 20 and 30-year maturities, higher yields, significant duration and price risk
All Treasuries are exempt from state and local income taxes, a meaningful advantage for investors in high-tax states
You can buy Treasuries at auction with no fees through TreasuryDirect.gov or in the secondary market through any brokerage

T-Bills: The Emergency Fund Upgrade

4-week and 13-week T-bills consistently yield more than most savings accounts and are state-tax exempt
Rolling T-bills (auto-reinvesting at maturity) provides a near-liquid, high-yield cash equivalent
Treasury money market funds hold T-bills professionally and offer same-day liquidity, simpler than buying directly
T-bill yields are quoted as annualized discount rates; a 5% discount rate on a 13-week bill is approximately 5.06% annualized return
Ideal for Tier 2 emergency reserves or any money you'll need within 3-12 months

I-Bonds: The Inflation Hedge for Savers

Series I savings bonds earn a composite rate: a fixed rate (set at purchase) plus an inflation adjustment that resets every 6 months based on CPI
I-bonds cannot lose value in nominal terms, the floor is 0%, protecting against deflation
Purchase limit is $10,000 per person per year on TreasuryDirect.gov, plus up to $5,000 via a tax refund
Must be held at least 12 months; early redemption within 5 years forfeits the last 3 months of interest
Federal taxable, state/local exempt, you can defer tax until redemption, useful for managing income brackets

TIPS: Inflation Protection in Larger Quantities

TIPS principal adjusts with CPI, if inflation is 3%, your principal grows 3% and your coupon is paid on the larger amount
No purchase limits, available in 5, 10, and 30-year maturities through TreasuryDirect or any brokerage
The inflation adjustment is taxable each year as ordinary income even before you receive it, called 'phantom income'
Best held in tax-advantaged accounts (IRA, 401k) to avoid annual phantom income tax
TIPS mutual funds and ETFs (like VIPSX or SCHP) provide diversification without maturity concentration

When to Use Each

T-bills: park short-term cash (1-12 months) at competitive, state-tax-exempt yields with near-zero risk
I-bonds: ideal first $10,000-$20,000 of inflation protection, simple, no phantom income, no duration risk
TIPS: larger inflation hedges, particularly in retirement accounts where phantom income isn't a concern
Nominal Treasuries: when you want to lock in a real yield and have a specific maturity target for a cash need
All four work best in combination, a well-structured fixed income allocation often includes multiple maturities

Key Takeaways

T-bills beat most savings accounts and money market funds on an after-tax basis in high-tax states
I-bonds are the simplest inflation hedge available to retail investors, start here before TIPS
Hold TIPS in tax-advantaged accounts to avoid the annual phantom income tax problem
TreasuryDirect.gov is free but clunky, many investors prefer buying Treasuries through Fidelity, Vanguard, or Schwab
Short-term Treasuries reduce portfolio risk without sacrificing meaningful return relative to bank deposits

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The information above is for educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security. Any historical figures are for illustration only, and past performance does not guarantee future results. Tax laws, regulations, and contribution limits change frequently, the details here may become outdated. Individual circumstances vary. Consult a qualified financial advisor, CPA, or attorney for guidance specific to your situation. Rubric Advisors is registered with the California DFPI; registration does not imply a certain level of skill or training.

Treasuries, I-Bonds, and TIPS: The Government Bond Toolkit

The Treasury Spectrum

T-Bills: The Emergency Fund Upgrade

I-Bonds: The Inflation Hedge for Savers

TIPS: Inflation Protection in Larger Quantities

When to Use Each

Key Takeaways

The Treasury Spectrum

T-Bills: The Emergency Fund Upgrade

I-Bonds: The Inflation Hedge for Savers

TIPS: Inflation Protection in Larger Quantities

When to Use Each

Key Takeaways

Related Topics

Inflation and Portfolio Protection

Infrastructure Investing: Stable Cash Flows and Inflation Protection

Emergency Fund Strategies for High Earners

Treasuries, I-Bonds, and TIPS: The Government Bond Toolkit

The Treasury Spectrum

T-Bills: The Emergency Fund Upgrade

I-Bonds: The Inflation Hedge for Savers

TIPS: Inflation Protection in Larger Quantities

When to Use Each

Key Takeaways

The Treasury Spectrum

T-Bills: The Emergency Fund Upgrade

I-Bonds: The Inflation Hedge for Savers

TIPS: Inflation Protection in Larger Quantities

When to Use Each

Key Takeaways

Related Topics

Inflation and Portfolio Protection

Infrastructure Investing: Stable Cash Flows and Inflation Protection

Emergency Fund Strategies for High Earners