CDs and Treasury bills are the two most popular low-risk alternatives to a savings account. The key difference: T-bill interest is exempt from state income tax, which can make a lower-rate T-bill worth more than a higher-rate CD after taxes.
CDs vs Treasury Bills: Quick Comparison
| Feature | CD | Treasury Bill |
|---|---|---|
| Best 2026 rate (1-year) | 4.75–5.15% | 4.50–4.80% |
| State income tax | Taxable | Exempt |
| Federal income tax | Taxable | Taxable |
| FDIC / government backed | FDIC ($250K limit) | US gov’t (no limit) |
| Liquidity | At maturity (or penalty) | Sell on secondary market |
| Minimum purchase | $0–$10,000 | $100 |
| Term options | 3 months to 5+ years | 4, 8, 13, 17, 26, 52 weeks |
| Where to buy | Directly from banks | TreasuryDirect or brokerages |
| Auto-renewal | Often auto-renews | Matures and pays out |
2026 Rate Comparison: CDs vs T-Bills
| Term | Best CD APY | T-Bill Yield | CD Advantage (pre-tax) |
|---|---|---|---|
| 4 weeks | 4.40% | 4.55% | T-bill +0.15% |
| 3 months | 4.75% | 4.60% | CD +0.15% |
| 6 months | 4.85–5.00% | 4.70% | CD +0.15–0.30% |
| 1 year | 4.75–5.15% | 4.50–4.80% | CD +0.25–0.35% |
Rates updated regularly. T-bill yields set weekly at Treasury auction.
The State Tax Math: When T-Bills Win
T-bill interest is exempt from state income tax. To find the equivalent CD rate, use this formula:
$$\text{CD Equivalent Rate} = \frac{\text{T-bill yield}}{1 - \text{state tax rate}}$$
Example: 4.70% T-Bill vs CD in Different States
| State | State Tax Rate | Equivalent CD Rate | T-Bill Wins If CD < |
|---|---|---|---|
| Texas / Florida (no state tax) | 0% | 4.70% | < 4.70% |
| Colorado | 4.4% | 4.91% | < 4.91% |
| North Carolina | 4.75% | 4.93% | < 4.93% |
| Georgia | 5.49% | 4.97% | < 4.97% |
| Virginia | 5.75% | 4.99% | < 4.99% |
| Minnesota | 9.85% | 5.21% | < 5.21% |
| Oregon | 9.90% | 5.22% | < 5.22% |
| New Jersey | 10.75% | 5.27% | < 5.27% |
| New York | 10.90% | 5.28% | < 5.28% |
| Hawaii | 11.00% | 5.28% | < 5.28% |
| California | 13.30% | 5.42% | < 5.42% |
In California at a 4.70% T-bill: You’d need a CD above 5.42% APY for the CD to beat the T-bill after state taxes.
After-Tax Returns: $50,000 Investment
In a State with 5% State Income Tax
| Investment | Pre-Tax Rate | 1-Year Interest | Federal Tax (22%) | State Tax (5%) | After-Tax |
|---|---|---|---|---|---|
| Best CD | 5.00% | $2,500 | $550 | $125 | $1,825 |
| T-bill | 4.70% | $2,350 | $517 | $0 | $1,833 |
T-bill wins by $8 despite lower pre-tax rate.
In California (13.3% State Tax)
| Investment | Pre-Tax Rate | 1-Year Interest | Federal Tax (22%) | State Tax (13.3%) | After-Tax |
|---|---|---|---|---|---|
| Best CD | 5.00% | $2,500 | $550 | $333 | $1,617 |
| T-bill | 4.70% | $2,350 | $517 | $0 | $1,833 |
T-bill wins by $216 despite a 0.30% lower pre-tax rate.
In Texas (No State Tax)
| Investment | Pre-Tax Rate | 1-Year Interest | Federal Tax (22%) | State Tax | After-Tax |
|---|---|---|---|---|---|
| Best CD | 5.00% | $2,500 | $550 | $0 | $1,950 |
| T-bill | 4.70% | $2,350 | $517 | $0 | $1,833 |
CD wins by $117 — state tax exemption provides no benefit.
FDIC Insurance vs Government Backing
| Coverage Type | CD | Treasury Bill |
|---|---|---|
| Coverage source | FDIC insurance | US Treasury / full faith of US gov’t |
| Maximum coverage | $250,000 per bank | Unlimited |
| Risk level | Extremely low | Lowest possible (sovereign debt) |
| Over $250,000 | Spread across banks | No limit |
For balances over $250,000: T-bills eliminate the FDIC limit concern entirely. You can invest $1 million in T-bills with the same government guarantee as $10,000.
Liquidity Comparison
| Situation | CD | Treasury Bill |
|---|---|---|
| Need money before maturity | Pay early withdrawal penalty (60–365 days interest) | Sell on secondary market at market price |
| Market value if sold early | N/A (not traded) | May gain or lose depending on rate movements |
| If interest rates rise after purchase | Stuck at lower rate (penalty to exit) | Sell at slight loss, reinvest at higher rate |
| If interest rates fall after purchase | Locked-in rate is now higher than market | Sell at slight gain |
CD advantage: No market value risk — you always know exactly what you’ll get at maturity.
T-bill advantage: Can exit without a large penalty if you find a better opportunity.
How to Buy Treasury Bills
| Method | Ease | Cost | Best For |
|---|---|---|---|
| TreasuryDirect.gov | Moderate | Free | Direct purchase, auto-rollover |
| Fidelity | Easy | Free | Brokerage integration, easy comparison |
| Vanguard | Easy | Free | Investors with Vanguard accounts |
| Charles Schwab | Easy | Free | Schwab customers |
TreasuryDirect.gov: Best for direct purchases with auto-rollover options. Set up your Treasury ladder just like a CD ladder.
Via brokerage: Buy, sell, and manage T-bills alongside your investment portfolio. Easier for most people.
CD Ladder vs T-Bill Ladder
Both strategies can be laddered to create regular cash flow:
| Feature | CD Ladder | T-Bill Ladder |
|---|---|---|
| Regular cash flow | Yes (as each CD matures) | Yes (as each T-bill matures) |
| Rate lock | For the full term | For each T-bill’s term |
| Available terms | 3 months to 5+ years | 4 weeks to 52 weeks (short) |
| Reinvestment | Usually auto-renews (watch for this) | Must reinvest manually or via auto-rollover |
Typical T-bill ladder: 4-week, 8-week, 13-week, 26-week, 52-week T-bills. One matures every few weeks.
Which Should You Choose?
Choose a CD if:
- You’re in a low-tax or no-tax state (TX, FL, WA, WY, NV, SD, AK, NH, TN)
- CD rates significantly exceed T-bill yields (0.40%+ premium)
- You want simplicity — one bank, automatic maturity handling
- You’re staying under the $250,000 FDIC limit
Choose Treasury Bills if:
- You’re in a high-tax state (CA, NY, NJ, OR, MN, HI)
- You have over $250,000 to invest (avoids FDIC limit)
- You want liquidity — ability to sell before maturity
- You’re comfortable using TreasuryDirect or a brokerage
Choose Both (Diversify) if:
- You have a larger balance to deploy across multiple instruments
- You want to hedge against bank-specific risks
See the full CD guide for best rates, laddering strategy, and HYSA comparisons.
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