Both CDs and Treasury bills are low-risk places for your cash. As of September 2026, their gross yields are close across most short terms — 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 |
| Approx. yield (Sept 2026) | ~3.90–4.50% depending on term | ~3.97–4.80% depending on term (per Fed H.15) |
| 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) |
Rates as of mid-September 2026 — verify current figures before acting, since both CD and Treasury rates change frequently.
Rate Comparison (September 2026)
| Term | Top CD Rate (approx.) | Treasury Yield (per Fed H.15, Sept 14, 2026) |
|---|---|---|
| 3 months | 3.90–4.25% | ~3.97% |
| 6 months | 4.15–4.30% | ~4.07% |
| 1 year | 4.30–4.44% | ~4.37% |
| 2 years | 4.30–4.40% | ~4.39% |
| 10 years | n/a (not a standard CD term) | ~4.80% |
At several terms, Treasury yields are now comparable to — or above — top CD rates, even before accounting for the state tax exemption. This is a shift from earlier periods when CDs more consistently led on gross rate. Always compare the live numbers, since the relationship changes with each Fed meeting and Treasury auction.
State Tax Advantage: How Much T-Bills Really Pay
Using the Current 1-Year Treasury Yield (~4.37%): Tax-Equivalent CD Rate by State
| State (illustrative bracket) | State Tax Rate | Tax-Equivalent CD Rate |
|---|---|---|
| Texas, Florida, Nevada, etc. | 0% | 4.37% (no advantage) |
| Arizona | 2.50% | 4.48% |
| Michigan | 4.25% | 4.56% |
| Colorado | 4.40% | 4.57% |
| Illinois | 4.95% | 4.60% |
| Virginia | 5.75% | 4.64% |
| New Jersey (mid-bracket) | 6.37% | 4.67% |
| New York (mid-bracket) | 6.85% | 4.69% |
| Minnesota (mid-bracket) | 7.85% | 4.74% |
| Oregon (mid-bracket) | 8.75% | 4.79% |
| California (mid-bracket) | 9.30% | 4.82% |
| California (top bracket) | 13.30% | 5.04% |
Formula: Tax-equivalent CD rate = Treasury yield ÷ (1 − state tax rate). State tax rates above are illustrative mid- or top-bracket figures — confirm your exact bracket with your state’s tax department before relying on this comparison. Recompute using the live Treasury yield, since it changes daily.
A 1-year Treasury at ~4.37% is equivalent to roughly a 5.04% CD for a California resident in the top 13.3% bracket. That’s a meaningful advantage — and notably, since the raw Treasury yield (4.37%) is already close to top CD rates (4.30%–4.44%), the after-tax case for Treasuries in high-tax states is stronger than it would be if CDs carried a larger nominal-rate lead.
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 (Illustrative, Sept 2026 Rates)
Using a top 1-year CD rate of 4.35% and a 1-year Treasury yield of 4.37%:
| Option | Gross Interest | Federal Tax (24%) | State Tax (8%, illustrative) | After-Tax Earnings |
|---|---|---|---|---|
| CD (4.35%) | $2,175 | -$522 | -$174 | $1,479 |
| Treasury (4.37%) | $2,185 | -$524 | $0 | $1,661 |
| Treasury advantage | — | — | — | $182 |
In California (illustrative top 13.3% state tax bracket)
| Option | Gross Interest | Federal Tax (24%) | State Tax (13.3%) | After-Tax Earnings |
|---|---|---|---|---|
| CD (4.35%) | $2,175 | -$522 | -$289 | $1,364 |
| Treasury (4.37%) | $2,185 | -$524 | $0 | $1,661 |
| Treasury advantage | — | — | — | $297 |
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, illustrative Sept 2026 rates — confirm current offers)
| Rung | Amount | Term | Illustrative Rate | Maturity |
|---|---|---|---|---|
| 1 | $10,000 | 3 months | 4.00% | Month 3 |
| 2 | $10,000 | 6 months | 4.20% | Month 6 |
| 3 | $10,000 | 9 months | 4.25% | Month 9 |
| 4 | $10,000 | 12 months | 4.35% | Month 12 |
| 5 | $10,000 | 18 months | 4.30% | Month 18 |
As each matures, reinvest for the longest term to maintain the ladder — check current rates at each reinvestment point.
T-Bill Ladder ($50,000, illustrative — confirm current auction yields at TreasuryDirect.gov)
| Rung | Amount | Term | Illustrative Yield | Maturity |
|---|---|---|---|---|
| 1 | $10,000 | 4 weeks | ~3.90% | Week 4 |
| 2 | $10,000 | 8 weeks | ~3.95% | Week 8 |
| 3 | $10,000 | 13 weeks | ~3.97% | Week 13 |
| 4 | $10,000 | 26 weeks | ~4.07% | Week 26 |
| 5 | $10,000 | 52 weeks | ~4.37% | 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 | As of September 2026, this is the case for several terms — check current numbers |
Other Short-Term Options to Consider
| Option | Approx. Yield (Sept 2026) | State Tax Exempt | FDIC/Govt Backed | Liquidity |
|---|---|---|---|---|
| High-yield savings | ~4.00–4.40% (verify current rate) | No | FDIC | Immediate |
| Money market account | ~3.80–4.20% (verify current rate) | No | FDIC | Immediate |
| CD | ~3.90–4.50% (varies by term) | No | FDIC | At maturity (penalty otherwise, varies by bank) |
| Treasury bill | ~3.97–4.37% (varies by term, per Fed H.15) | Yes | US govt | At maturity or sell |
| I Bond | 4.26% composite (May–Oct 2026 rate, per TreasuryDirect) | 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) | ~4.39–4.80% (per Fed H.15) | Yes | US govt | At maturity or sell |
Related: CD Rates | Bonds vs CDs | 1-Year CD Rates
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