A 1-year CD is currently paying a slightly higher headline rate than a 1-year Treasury bill, roughly 4.30% to 4.40% APY versus somewhere in the 4.0% to 4.4% range depending on the exact term, but that comparison is incomplete. Treasury bill interest is exempt from state and local income tax, while CD interest is taxed at both the federal and state level, so the actual after-tax winner flips to T-bills for most people once you do the math. Which one actually comes out ahead depends less on the sticker rate and more on which state you live in.
What's the Real Rate Difference Between T-Bills and CDs Right Now?
As of mid-October 2026, short-term Treasury bills have been auctioning at a high rate between about 4.05% and 4.21% for the 13-week (3-month) term, and the 26-week (6-month) bill settled at an investment rate of 4.441% at its September 28, 2026 auction. Meanwhile, the top advertised 1-year CD rates from online banks were running about 4.30% to 4.40% APY in mid-October 2026, according to Bankrate and NerdWallet's rate roundups, with an occasional outlier (Popular Direct briefly advertised 5.00% on a different term). These numbers move every week on both sides, so treat them as a snapshot, not a guarantee, and check TreasuryDirect.gov or your bank's current rate before committing. The headline gap is small either way, usually well under half a percentage point, which is exactly why the tax treatment ends up deciding the real winner.
Why Does the Tax Treatment Matter More Than the Headline Rate?
Because Treasury bill interest is exempt from state and local income tax under federal law, while CD interest gets taxed by your state the same way a paycheck does. Both are taxed federally as ordinary income, so the federal bracket actually cancels out of the comparison entirely. What's left is a simple breakeven rule: your state tax rate decides which one wins. The breakeven state tax rate is 1 minus the T-bill rate divided by the CD rate. Plug in a 4.20% T-bill against a 4.40% CD and the breakeven works out to 1 − (4.20 ÷ 4.40) = 4.5%. If your state income tax rate is above roughly 4.5%, the T-bill wins after tax despite the lower sticker number. Below that, the CD wins outright, and in a state with no income tax at all, there's no contest: the higher headline rate just wins.
How Much Does This Actually Add Up to on a Real Balance?
On $50,000 parked for a year, the T-bill can net you more real dollars even with a lower advertised rate. Here's the math, assuming a 24% federal bracket and a 9% state income tax rate (roughly California's upper-middle bracket):
- CD at 4.40%: $50,000 × 4.40% = $2,200 in interest. Federal tax (24%) takes $528, state tax (9%) takes another $198. After-tax proceeds: $1,474, an effective after-tax yield of 2.95%.
- T-bill at 4.20%: $50,000 × 4.20% = $2,100 in interest. Federal tax (24%) takes $504. State tax: $0. After-tax proceeds: $1,596, an effective after-tax yield of 3.19%.
The T-bill nets $122 more over the year, despite a 0.20-point lower headline rate, purely because it skipped the state tax bite. Move to a state with no income tax, like Texas, Florida, or Washington, and that $198 of state tax on the CD never existed in the first place, so the CD's higher rate just wins outright with no asterisk.
What About Safety and Liquidity?
Both are about as safe as cash gets, but they fail differently if you need the money early. CDs are backed by FDIC insurance (or NCUA at a credit union) up to $250,000 per depositor, per bank, and breaking one before maturity typically costs you a few months of interest as a fixed penalty, regardless of what rates have done since you opened it. T-bills are backed directly by the full faith and credit of the U.S. government with no dollar cap at all, which matters once you're parking more than $250,000 in one place, and they can be sold on the secondary market at any time before maturity with no penalty, though you'll get whatever the market price happens to be that day, which moves opposite to interest rates. Neither is as instantly accessible as a savings account, where the money is available same-day with no penalty of any kind.
How Do You Actually Buy a T-Bill?
Directly through TreasuryDirect.gov, with no fee, in amounts starting at $100 and terms from 4 weeks to 52 weeks. You place a non-competitive bid before the weekly auction, meaning you're guaranteed to win and you'll receive whatever rate the auction clears at, not a rate you have to guess or negotiate. A CD, by contrast, is opened directly with whichever bank or credit union is advertising the rate, usually with a $500 to $1,000 minimum, and it locks in a fixed, known rate the moment you open it rather than whatever an auction produces days later.
So Which One Should You Actually Use?
- You live in a state with real income tax (anywhere except Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming): a T-bill in a comparable term usually wins after tax, even at a lower headline rate, once your state rate clears roughly 4.5%.
- You live in a no-income-tax state: skip the tax math entirely and just take whichever headline rate is higher.
- You might need the money before the term ends: T-bills are easier to exit cleanly, since you can sell on the secondary market anytime instead of eating a fixed early-withdrawal penalty like a CD charges.
- You're parking more than $250,000 in one place: T-bills carry no insurance cap at all, while a CD balance that size needs to be spread across multiple banks to stay fully covered.
- You want the simplest setup: a CD from your existing bank takes a few clicks. A T-bill means opening a free TreasuryDirect account first, which takes a bit more effort the first time but nothing after that.
If you're deciding between these two as a place to park an emergency fund specifically, our emergency fund calculator can help you land on the actual dollar amount you need before you decide where it should sit. And if a CD alone, without the Treasury comparison, is what you're actually weighing against a high-yield savings account, our breakdown of CDs vs. high-yield savings accounts covers that side of the decision in more depth. For a different Treasury product built more for multi-year inflation protection than short-term parking, see our explainer on how Series I savings bonds actually work.
—
Spicy Investing