Are Treasury bills better than CDs?

It depends on your state. Treasury bill interest is exempt from state and local taxes, which makes them more valuable in high-tax states. A 5.00% T-bill in California (13.3% state tax) is equivalent to about 5.77% on a CD. CDs are simpler to buy and some offer higher nominal rates. In no-income-tax states, compare purely on rate.

Are Treasury bills safer than CDs?

Both are extremely safe. Treasury bills are backed by the full faith and credit of the US government. CDs are FDIC insured up to $250,000 per depositor per bank, also backed by the US government. For amounts under $250,000, the safety is effectively identical.

CDs vs Treasury Bills: Which Is Better for Your Cash? (2026)

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