CDs vs Treasury Bills: Which Pays More?
Both CDs and Treasury bills are low-risk savings options, but they differ in rates, taxes, and flexibility. Here is a side-by-side comparison to help you decide.
Current Rates Compared
| Term | Best CD | T-Bill Yield | Difference |
|---|---|---|---|
| ~3 Months | N/A | 3.67% | — |
| ~6 Months | N/A | 3.65% | — |
| ~12 Months | 4.65% | 3.52% | +1.13% |
Note: T-bill rates are before the state/local tax advantage. Your effective after-tax yield may be higher.
Key Differences
Certificates of Deposit
- •FDIC insured up to $250,000
- •Interest taxed at federal, state, and local levels
- •Early withdrawal penalty if you cash out early
- •Open at any bank or credit union, easy to set up
- •Available in almost any term (3 months to 10 years)
Treasury Bills
- •Backed by U.S. government (no FDIC limit needed)
- •Interest exempt from state and local tax
- •Can sell on secondary market before maturity
- •Buy on TreasuryDirect.gov or through a brokerage
- •Terms: 4-week, 8-week, 13-week, 26-week, 52-week
The Treasury Tax Advantage
Treasury bill interest is exempt from state and local income taxes. This makes a big difference in high-tax states. Here is how a 3.65% T-bill compares to a CD at the same nominal rate after state taxes:
| State Tax Rate | CD After-Tax | T-Bill After-Tax | T-Bill Advantage |
|---|---|---|---|
| 0% (TX, FL, WA) | 4.50% | 4.50% | None |
| 5% (CO, NC, IL) | 4.27% | 4.50% | +0.23% |
| 9% (CA, NJ) | 4.09% | 4.50% | +0.41% |
| 13% (CA top bracket) | 3.92% | 4.50% | +0.58% |
Example uses 4.50% nominal rate. Actual advantage depends on current rates and your marginal tax bracket.
When to Choose CDs
- •CD rates are meaningfully higher — sometimes banks offer promotional rates that beat T-bills by 0.5%+
- •You live in a no-income-tax state — the T-bill tax advantage disappears
- •You want a specific term — CDs come in more term options (3, 6, 9, 12, 18, 24, 36, 60 months)
- •You prefer simplicity — open a CD at your bank in minutes with no auction process
When to Choose Treasury Bills
- •You live in a high-tax state — the state tax exemption can add 0.3-0.6% in effective yield
- •You have more than $250,000 — T-bills have no insurance cap since they are government-backed
- •You want liquidity — T-bills can be sold on the secondary market before maturity
- •You already use a brokerage — buy T-bills alongside your other investments
Frequently Asked Questions
Are Treasury bills safer than CDs?
Both are extremely safe. Treasury bills are backed by the full faith and credit of the U.S. government. CDs are FDIC insured up to $250,000 per depositor per bank. For amounts under $250,000, the practical safety difference is negligible.
Do Treasury bills have tax advantages over CDs?
Yes. Treasury bill interest is exempt from state and local income tax. CD interest is fully taxable at federal, state, and local levels. If you live in a high-tax state like California or New York, this can make T-bills effectively yield more even when nominal rates are similar.
Can I sell a Treasury bill before maturity?
Yes. T-bills trade on the secondary market through your broker, so you can sell before maturity. However, you may receive more or less than you paid depending on current rates. CDs have a fixed early withdrawal penalty, which is typically more predictable.
How do I buy Treasury bills?
You can buy T-bills directly through TreasuryDirect.gov with no fees, or through most brokerages (Fidelity, Schwab, Vanguard). TreasuryDirect has a $100 minimum. Brokerages let you buy on the secondary market as well.
Which is better for a 6-month investment?
Compare the current rates: the best 6-month CD is N/A and the 26-week T-bill is 3.65%. Factor in your state tax rate. If you pay 5%+ in state taxes, the T-bill's tax advantage can close a 0.2-0.3% rate gap.