Both CDs and Treasury bills are low-risk places for your cash. Their gross yields vary by term and move daily — but Treasuries carry a state-tax exemption that CDs don’t, which can tip the balance depending on where you live.
CDs vs Treasury Bills: Side by Side
| Feature | CDs | Treasury Bills/Notes |
|---|---|---|
| Issuer | Banks/Credit Unions | US Government |
| Safety | FDIC/NCUA insured ($250K limit) | Full faith & credit of US govt (no dollar limit) |
| Income tax (federal) | Taxable | Taxable |
| Income tax (state/local) | Taxable | Exempt |
| Yield | Varies by bank and term; see best CD rates | Varies by term; see the Fed’s H.15 release or TreasuryDirect.gov |
| Terms available | 3 months to 5+ years | 4, 8, 13, 17, 26, 52 weeks (bills); 1–10 years (notes) |
| Minimum investment | $0–$1,000 (varies) | $100 |
| Early withdrawal | Penalty (varies significantly by bank) | Sell on secondary market (price may vary) |
| Where to buy | Bank, credit union, brokerage | TreasuryDirect.gov or brokerage |
| Compounding | Interest compounds (varies by bank) | No compounding (sold at a discount to face value) |
Verify current figures before acting, since both CD and Treasury rates change frequently.
Rate Comparison
Compare the live numbers: the rate on the CD term you are offered against the Treasury yield for the same term, which the Federal Reserve publishes daily in its H.15 release and TreasuryDirect.gov shows at auction. CD rates we read on bank pages in October 2026, with their dates, are in best CD rates. When the two yields are close, the Treasury’s state tax exemption can tip the balance.
State Tax Advantage: How Much T-Bills Really Pay
Tax-Equivalent CD Rate for a Hypothetical 4.50% Treasury Yield, by State
| State (illustrative bracket) | State Tax Rate | Tax-Equivalent CD Rate |
|---|---|---|
| Texas, Florida, Nevada, etc. | 0.00% | 4.50% (no advantage) |
| Arizona | 2.50% | 4.62% |
| Michigan | 4.25% | 4.70% |
| Colorado | 4.40% | 4.71% |
| Illinois | 4.95% | 4.73% |
| Virginia | 5.75% | 4.77% |
| New Jersey (mid-bracket) | 6.37% | 4.81% |
| New York (mid-bracket) | 6.85% | 4.83% |
| Minnesota (mid-bracket) | 7.85% | 4.88% |
| Oregon (mid-bracket) | 8.75% | 4.93% |
| California (mid-bracket) | 9.30% | 4.96% |
| California (top bracket) | 13.30% | 5.19% |
Formula: Tax-equivalent CD rate = Treasury yield ÷ (1 − state tax rate). The 4.50% yield is hypothetical; state tax rates above are illustrative mid- or top-bracket figures, so confirm your exact bracket with your state’s tax department and recompute using the live Treasury yield.
A Treasury yielding 4.50% is equivalent to roughly a 5.19% CD for a California resident in the top 13.3% bracket. The higher your state tax rate, the larger the edge, when the gross yields are close.
How Each Works
How CDs Work
- Deposit money for a set term (3 months to 5+ years)
- Earn fixed interest, typically compounded daily or monthly
- At maturity, receive principal + interest
- Early withdrawal triggers a penalty — the formula varies significantly by bank, so confirm before opening
How Treasury Bills Work
- Buy at a discount to face value (e.g., pay less than $1,000 for a $1,000 bill)
- At maturity, receive full face value ($1,000)
- The difference between purchase price and face value is your interest
- No compounding — interest is built into the discount
- Can sell before maturity on the secondary market (price varies with prevailing rates)
Earnings on $50,000 for 1 Year (Hypothetical 4.50% Yield on Both)
Assuming a CD and a Treasury both yield 4.50%:
| Option | Gross Interest | Federal Tax (24%) | State Tax (8%, illustrative) | After-Tax Earnings |
|---|---|---|---|---|
| CD (4.50%) | $2,250 | -$540 | -$180 | $1,530 |
| Treasury (4.50%) | $2,250 | -$540 | $0 | $1,710 |
| Treasury advantage | — | — | — | $180 |
In California (illustrative top 13.3% state tax bracket)
| Option | Gross Interest | Federal Tax (24%) | State Tax (13.3%) | After-Tax Earnings |
|---|---|---|---|---|
| CD (4.50%) | $2,250 | -$540 | -$299 | $1,411 |
| Treasury (4.50%) | $2,250 | -$540 | $0 | $1,710 |
| Treasury advantage | — | — | — | $299 |
Figures use simple (non-compounded) interest on $50,000 for illustration. Recompute with your actual bracket and the live rates before deciding.
Building a Ladder
CD Ladder ($50,000, highest rates we read per term)
| Rung | Amount | Term | Bank | APY | Maturity |
|---|---|---|---|---|---|
| 1 | $10,000 | 3 months | EverBank | 3.60% | Month 3 |
| 2 | $10,000 | 6 months | Popular Direct | 4.35% | Month 6 |
| 3 | $10,000 | 9 months | Bread Savings | 4.40% | Month 9 |
| 4 | $10,000 | 12 months | Popular Direct | 4.50% | Month 12 |
| 5 | $10,000 | 18 months | Bread Savings | 4.75% | Month 18 |
Rates from the bank pages we read in October 2026 (dated in best CD rates). Some banks need larger minimums (Popular Direct asks $10,000). As each matures, reinvest for the longest term to maintain the ladder, and check current rates at each reinvestment point.
T-Bill Ladder ($50,000, check current auction yields at TreasuryDirect.gov)
| Rung | Amount | Term | Maturity |
|---|---|---|---|
| 1 | $10,000 | 4 weeks | Week 4 |
| 2 | $10,000 | 8 weeks | Week 8 |
| 3 | $10,000 | 13 weeks | Week 13 |
| 4 | $10,000 | 26 weeks | Week 26 |
| 5 | $10,000 | 52 weeks | Week 52 |
When to Choose Each
Choose CDs When:
| Situation | Why |
|---|---|
| You live in a no-income-tax state | No state tax advantage for Treasuries |
| A specific CD rate is meaningfully higher than the comparable Treasury yield | Compare the live numbers before assuming |
| You want simplicity | Open at your bank, auto-renew |
| You want FDIC insurance specifically (under $250K) | Familiar protection |
| Longer terms (2-5 years) are your priority | Treasury bills max out at 52 weeks (though Treasury notes go longer) |
| You want compounding interest | CDs compound; T-bills don’t |
Choose Treasury Bills/Notes When:
| Situation | Why |
|---|---|
| You’re in a state with meaningful income tax | State tax exemption adds to effective after-tax yield |
| Over $250K to invest | No FDIC-style cap; unlimited government backing |
| Short-term parking (4-26 weeks) | Very liquid, frequent auctions |
| You already have a TreasuryDirect or brokerage account | Easy to buy and manage |
| Current Treasury yields are at or above comparable CD rates | Check current numbers for your term |
Other Short-Term Options to Consider
| Option | Rate | State Tax Exempt | FDIC/Govt Backed | Liquidity |
|---|---|---|---|---|
| High-yield savings (Bread Savings) | 4.05% | No | FDIC | Immediate |
| Money market (FDIC national average) | 0.63% | No | FDIC | Immediate |
| 12-month CD (Popular Direct) | 4.50% | No | FDIC | At maturity (penalty otherwise, varies by bank) |
| Treasury bill | Check H.15 / TreasuryDirect.gov | Yes | US govt | At maturity or sell |
| I Bond | Check TreasuryDirect.gov (resets every 6 months) | Yes | US govt | After 12 months (penalty if <5 yrs) |
| Money market fund | Varies with short-term rates | Some | No (SEC regulated, not FDIC) | Same day |
| Treasury notes (2-10yr) | Check H.15 / TreasuryDirect.gov | Yes | US govt | At maturity or sell |
Related: CD Rates | Bonds vs CDs | 1-Year CD Rates
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