Both CDs and Treasury bills are low-risk places for your cash. But they have important differences in taxes, rates, and access.
CDs vs Treasury Bills: Side by Side
| Feature | CDs | Treasury Bills |
|---|---|---|
| Issuer | Banks/Credit Unions | US Government |
| Safety | FDIC/NCUA insured ($250K) | Full faith & credit of US govt (no limit) |
| Income tax (federal) | Taxable | Taxable |
| Income tax (state/local) | Taxable | Exempt |
| Current rates (2026) | 4.00-5.50% | 4.25-5.25% |
| Terms available | 1 month to 10 years | 4, 8, 13, 17, 26, 52 weeks |
| Minimum investment | $0-$500 | $100 |
| Early withdrawal | Penalty (typically 3-12 months interest) | Sell on secondary market (price may vary) |
| Where to buy | Bank, credit union, brokerage | TreasuryDirect.gov or brokerage |
| Compounding | Interest compounds (varies) | No compounding (sold at discount) |
Rate Comparison (2026)
| Term | Top CD Rate | Treasury Bill Rate | T-Bill Tax-Equivalent (8% state tax) | T-Bill Tax-Equivalent (13% state tax) |
|---|---|---|---|---|
| 4 weeks | 4.00% | 4.75% | 5.16% | 5.46% |
| 3 months | 4.50% | 5.00% | 5.43% | 5.75% |
| 6 months | 4.75% | 5.10% | 5.54% | 5.86% |
| 1 year | 5.00% | 5.00% | 5.43% | 5.75% |
Tax-equivalent yield = T-bill yield ÷ (1 - state tax rate)
State Tax Advantage: How Much T-Bills Really Pay
T-Bill at 5.00%: Tax-Equivalent CD Rate by State
| State | State Tax Rate | Tax-Equivalent CD Rate |
|---|---|---|
| Texas, Florida, Nevada, etc. | 0% | 5.00% (no advantage) |
| Arizona | 2.50% | 5.13% |
| Colorado | 4.40% | 5.23% |
| Illinois | 4.95% | 5.26% |
| Michigan | 4.25% | 5.22% |
| Virginia | 5.75% | 5.31% |
| New Jersey | 6.37-10.75% | 5.34-5.60% |
| New York | 6.85-10.90% | 5.37-5.61% |
| Minnesota | 7.85-9.85% | 5.43-5.55% |
| Oregon | 8.75-9.90% | 5.48-5.55% |
| California | 9.30-13.30% | 5.51-5.77% |
A 5.00% T-bill in California is equivalent to a 5.77% CD. That’s a significant advantage.
How Each Works
How CDs Work
- Deposit money for a set term (3 months to 5 years)
- Earn fixed interest, typically compounded monthly or daily
- At maturity, receive principal + interest
- Early withdrawal = penalty (3-12 months of interest)
How Treasury Bills Work
- Buy at a discount to face value (e.g., pay $975 for a $1,000 bill)
- At maturity, receive full face value ($1,000)
- The $25 difference is your interest
- No compounding — interest is built into the discount
- Can sell before maturity on secondary market (price varies)
Earnings on $50,000 for 1 Year
| Option | Rate | Federal Tax (24%) | State Tax (8%) | After-Tax Earnings |
|---|---|---|---|---|
| CD (5.00%) | $2,500 | -$600 | -$200 | $1,700 |
| T-Bill (5.00%) | $2,500 | -$600 | $0 | $1,900 |
| T-Bill advantage | — | — | — | $200 |
In California (13.3% state tax)
| Option | Rate | Federal Tax (24%) | State Tax (13.3%) | After-Tax Earnings |
|---|---|---|---|---|
| CD (5.00%) | $2,500 | -$600 | -$333 | $1,567 |
| T-Bill (5.00%) | $2,500 | -$600 | $0 | $1,900 |
| T-Bill advantage | — | — | — | $333 |
Building a Ladder
CD Ladder ($50,000)
| Rung | Amount | Term | Rate | Maturity |
|---|---|---|---|---|
| 1 | $10,000 | 3 months | 4.50% | Month 3 |
| 2 | $10,000 | 6 months | 4.75% | Month 6 |
| 3 | $10,000 | 9 months | 4.80% | Month 9 |
| 4 | $10,000 | 12 months | 5.00% | Month 12 |
| 5 | $10,000 | 18 months | 5.10% | Month 18 |
As each matures, reinvest for the longest term to maintain the ladder.
T-Bill Ladder ($50,000)
| Rung | Amount | Term | Rate | Maturity |
|---|---|---|---|---|
| 1 | $10,000 | 4 weeks | 4.75% | Week 4 |
| 2 | $10,000 | 8 weeks | 4.85% | Week 8 |
| 3 | $10,000 | 13 weeks | 5.00% | Week 13 |
| 4 | $10,000 | 26 weeks | 5.10% | Week 26 |
| 5 | $10,000 | 52 weeks | 5.00% | Week 52 |
When to Choose Each
Choose CDs When:
| Situation | Why |
|---|---|
| You live in a no-income-tax state | No state tax advantage for T-bills |
| CD rate is significantly higher than T-bill | Some CDs beat T-bill rates |
| You want simplicity | Open at your bank, auto-renew |
| You want FDIC insurance (under $250K) | Familiar protection |
| Longer terms (2-5 years) available | T-bills max out at 52 weeks |
| You want compounding interest | CDs compound; T-bills don’t |
Choose Treasury Bills When:
| Situation | Why |
|---|---|
| High state income tax (5%+) | State tax exemption adds 0.25-0.75%+ effective yield |
| Over $250K to invest | No FDIC cap concerns; unlimited government backing |
| Short-term parking (4-26 weeks) | Very liquid, frequent auctions |
| TreasuryDirect account setup | Easy to buy and manage |
| You have a brokerage account | T-bills available on most platforms |
Other Short-Term Options to Consider
| Option | Rate (2026) | State Tax Exempt | FDIC/Govt Backed | Liquidity |
|---|---|---|---|---|
| High-yield savings | 4.25-5.25% | No | FDIC | Immediate |
| Money market account | 4.00-5.00% | No | FDIC | Immediate |
| CD | 4.00-5.50% | No | FDIC | At maturity (penalty otherwise) |
| Treasury bill | 4.25-5.25% | Yes | US govt | At maturity or sell |
| I Bond | 3.11% (current composite) | Yes | US govt | After 12 months (penalty if <5 yrs) |
| Money market fund | 4.50-5.25% | Some | No (SEC regulated) | Same day |
| Treasury notes (2-10yr) | 4.00-4.75% | Yes | US govt | At maturity or sell |
Related: CD Rates | High-Yield Savings Accounts | I Bonds | FDIC Insurance | APY vs APR