T bonds offer predictable coupon income and are highly liquid in the secondary market, yet they expose you to interest rate risk and do not include explicit inflation protection unless you choose Treasury Inflation-Protected Securities (TIPS) instead. Structure and Market Dynamics of T Bonds T bonds, or Treasury bonds, are traditional marketable securities with maturities ranging from 20 to 30 years, paying a fixed coupon interest every six months and returning the principal at maturity.
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State and Local Tax Exemptions Interest on both i bonds and t bonds is exempt from state and local income tax, which can enhance their after-tax appeal for investors in high-tax jurisdictions. T bonds, particularly longer-maturity issues, often move inversely to equities during periods of stress, yet they carry duration risk that can amplify losses when rates rise aggressively.
With t bonds, you are taxed annually on coupon payments at ordinary income rates, while any capital gain or loss upon sale is taxed at federal level and, depending on your state, may be subject to state income tax as well. TIPS, a variant of t bonds, may have a portion of interest income subject to tax annually even though the inflation adjustment increases the principal value, a phenomenon known as phantom income that careful tax planning can mitigate.
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Investors can purchase t bonds directly at auction, through brokers, or via exchange-traded funds, with purchase limits generally tied to bidding rules rather than the per-person caps that apply to i bonds. Interest accrues monthly and compounds semiannually, and you can purchase i bonds electronically through TreasuryDirect up to $10,000 per Social Security Number per year, with an additional $5,000 allowed using paper forms from tax refunds.
More About I bonds vs t bonds
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