Enormous sums of retiree savings sit in ordinary bank savings accounts earning almost nothing, even as safe government options pay far more. The national average interest rate on a savings account remains well below half a percent, while Treasury bills and Series I savings bonds have generally paid considerably higher yields. For a saver living on fixed income, the gap between the two is real money left on the table.
What the average savings account actually pays
Most people never check the rate on their savings account, and many banks count on exactly that. Large, well-known institutions in particular often pay only a tiny fraction of a percent on savings balances, and because the balance still creeps up by a few cents, the low return is easy to miss. The national picture confirms how little the typical account earns.
The Federal Deposit Insurance Corporation tracks a national average deposit rate, and that average for basic savings accounts has stayed well under half a percent, based on the FDIC’s national rate data. Inflation over recent years has frequently outpaced that return, which means money parked in a low-rate account can lose purchasing power even while the balance technically rises.
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Why Treasury bills and I bonds pay more
Two government-backed alternatives have generally offered substantially higher yields. Treasury bills are short-term securities issued by the U.S. Treasury, sold for terms as short as a few weeks and up to a year, and their yields move with the market, as the Treasury explains through its TreasuryDirect service. Because they are backed by the full faith and credit of the federal government, they carry the same bedrock safety that makes them appealing to conservative savers.
Series I savings bonds, known as I bonds, are designed to keep pace with inflation. Their return combines a fixed rate with an inflation-based rate that the Treasury resets every May and November, according to TreasuryDirect. That composite rate changes over time, so the precise figure shifts twice a year, but I bonds have generally paid far more than a standard savings account in recent years.
The trade-offs a saver should understand
Higher yield comes with conditions that a savings account does not impose. An I bond must be held for at least one year and cannot be cashed at all during that time, and redeeming one before five years costs the most recent three months of interest. There are also annual purchase limits per person. Treasury bills are more flexible and can be held to maturity or sold beforehand, but the rate on any given bill is fixed only for its short term and resets whenever new bills are bought.
None of these options carry the day-to-day convenience of a checking-linked savings account, so they suit money a saver does not expect to need at a moment’s notice. Keeping a cushion of cash in an accessible account for emergencies, while shifting longer-term savings into higher-yielding government options, is a common way to capture the difference without giving up liquidity where it truly matters.
Buying either option is more approachable than many savers assume. Treasury bills and Series I bonds are both purchased directly from the federal government through the TreasuryDirect website, with no broker and no sales commission, and Treasury bills can also be bought through a bank or brokerage. The interest they pay is exempt from state and local income tax, a quiet advantage over a bank account for residents of higher-tax states, though it remains subject to federal tax. Interest on an I bond can even be deferred for federal tax purposes until the bond is cashed or reaches final maturity, letting the earnings compound untaxed in the meantime. For a retiree who has grown comfortable letting savings sit in a familiar bank, the real hurdle is habit rather than complexity. Setting up an account and moving a portion of idle cash into these instruments is a one-time task, after which the higher yield does its work automatically. The tools were designed for ordinary savers, not just professional investors, and the government built them to be safe, simple, and widely accessible.
How the gap adds up over a retirement
The difference between a fraction of a percent and a materially higher yield compounds into real sums over time, especially on the larger balances many retirees keep. On tens of thousands of dollars, the yearly gap between a near-zero savings rate and a government security paying substantially more can amount to hundreds or even thousands of dollars in forgone interest. Stretched across a retirement that may last decades, that shortfall grows into a meaningful sum.
Because the exact numbers move, the practical step is to compare current rates before assuming a bank savings account is good enough. The Treasury posts I bond and bill rates directly, and the FDIC posts the national savings average, giving a saver a straightforward way to see how far apart the two really stand at any given moment. The comparison takes only a few minutes and can reshape how a fixed-income household holds its cash.
Safe by design, not by luck
Part of what makes the comparison so lopsided is that both sides are about as safe as saving gets. Insured bank deposits are protected up to federal limits, and Treasury securities are backed by the federal government, so a saver choosing between them is not trading safety for yield in the way stocks or corporate bonds would require. The main differences are liquidity and the size of the return. For an older American who values certainty above all, that is a rare situation: a chance to earn substantially more without taking on meaningfully more risk, provided the money can sit for the required term.
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This article was researched and drafted with AI assistance and reviewed against the linked primary sources.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
