CD vs Treasury Bills (2026): When T-Bills Beat 5% CDs
CD vs Treasury bill comparison (2026): 12-mo T-bill 4.35% beats most 12-mo CDs after state tax. State tax math, broker access, laddering both. Free calculators.
A short-term US government debt security (4-, 8-, 13-, 17-, 26-, or 52-week terms) sold at a discount and redeemed at face value. Interest is the difference between purchase and redemption price.
Example: A 52-week T-bill yielding 4.35% bought at $9,565 redeems at $10,000 — a $435 gain over 52 weeks, exempt from state income tax.
Interest from US Treasury securities (T-bills, T-notes, T-bonds, I-bonds, EE-bonds) is exempt from state and local income tax. Federal tax still applies.
Example: In California (13.3% top rate), a 4.35% T-bill has the same after-tax yield as a ~5.02% CD. The state tax exemption is worth 67 bps.
The US Treasury's own purchase platform (treasurydirect.gov) — no fees, no broker, $100 minimum, direct from the issuer. Alternative: any brokerage (Fidelity, Schwab, Vanguard).
Example: Buying $10,000 of 52-week T-bills on TreasuryDirect takes 5 minutes; the same purchase via a brokerage takes ~2 minutes and clears next-day.
Short answer: in {YEAR}, T-bills and CDs pay similar headline yields (~4.3–5.2% on 12-month maturities), but T-bills are exempt from state income tax. For anyone in a state with income tax, that exemption is worth 30–80 bps of after-tax yield — enough to flip the choice in California, New York, and Oregon.
Head-to-head: $10,000 for 12 months ({YEAR})
- 52-week T-bill at 4.35% → $435 pre-tax. After 24% federal + 0% state = $330 net (no-tax state). After 24% fed + 9.3% CA state = $292 if it WERE state-taxable — but it isn't, so still $330. Plus you avoid the $40 of CA state tax a CD would owe.
- 12-month CD at 5.10% → $510 pre-tax. After 24% federal + 0% state = $388 net in TX/FL/WA. After 24% fed + 9.3% CA state = $341 net in California.
- In a no-state-tax state (TX, FL, WA, TN): CD wins by ~$58 on $10K.
- In California (9.3%): CD wins by only $11. In New York City (10.9% combined): T-bill wins by ~$3.
Beyond yield: 3 reasons to prefer T-bills
- Liquidity. T-bills trade on the secondary market — sell anytime for current market price (small bid/ask). CDs are locked until maturity unless you pay the EWP.
- No bank credit risk. T-bills are backed by the US government; CDs depend on FDIC insurance which caps at $250K/depositor/bank.
- Laddering is simpler. T-bill ladders use standard maturity dates (every 4, 8, 13, 17, 26, 52 weeks) and reinvest automatically on TreasuryDirect.
3 reasons to prefer CDs
- Higher headline yield. Banks compete on CD APY; the top 12-month CD almost always edges T-bills by 50–100 bps pre-tax.
- Set-and-forget. The bank credits interest automatically; T-bills require either manual reinvest or a brokerage auto-roll feature.
- Local relationship. If you bank where you mortgage, a CD can build relationship discounts. T-bills are anonymous transactions with the Treasury.
The state-tax math is the whole game
Use the formula: T-bill after-tax yield = T-bill APY × (1 − federal rate). CD after-tax yield = CD APY × (1 − federal rate − state rate). Set them equal, solve for the break-even CD rate: CD-needed = T-bill × (1 − fed) / (1 − fed − state).
For a 24% federal taxpayer holding a 4.35% T-bill in CA (9.3% state): break-even CD = 4.35% × 0.76 / 0.667 = 4.96%. Any CD under 4.96% loses. Any over 4.96% wins. In a no-state-tax state, the break-even CD is just 4.35% — easy bar to clear.
Recommended split
In a state-tax state (CA, NY, OR, MA, NJ, MN): lean T-bills for 6–12 month money. In a no-tax state: lean CDs for the higher headline. For longer horizons (3–5 years): CDs win because T-bill maturities cap at 52 weeks (and longer-term T-notes/T-bonds have different rules). Compare on the CD calculator and the savings account calculator.
Frequently asked questions
Are T-bill yields the same as APY?
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Are T-bills FDIC-insured?
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Can I buy T-bills inside an IRA?
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How often can I roll T-bills?
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Is the T-bill secondary market real for retail investors?
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Sources & further reading
Plug in your own amounts with our free calculators.