Are T-Bills better than CDs? Not universally. Treasury Bills usually win on an after-tax basis if you live in a high-tax state, and they win on flexibility if you might need the money early. Certificates of Deposit tend to pay a slightly higher headline rate and let you lock it in, which matters more if you live in a state with no income tax or you expect rates to fall. Both sit among the safest places to hold cash. The right pick comes down to your state tax rate, how firmly you can commit the funds, and how much you’re investing.
Yields Side by Side in Early 2026
At face value, top CDs are paying a bit more than T-Bills right now. In late March 2026, T-Bill auction investment rates came in around 3.68% for 4-week bills, 3.72% for 13-week, 3.75% for 26-week, and 3.63% for 52-week.1TreasuryDirect. Announcements, Data and Results Top online-bank CDs at the same time paid roughly 4.15% APY on 6-month terms, 4.10% on 1-year, and 3.85% on 2-year.
A few things to know about those numbers. T-Bill yields are set at public auction and track the Federal Reserve’s short-term target rate closely, so every buyer at the same auction earns the same yield. CD rates vary wildly between institutions. The best online-bank rate and your neighborhood branch’s rate can differ by more than a full percentage point, so shopping matters far more for CDs than for T-Bills.
The mechanics differ too. A T-Bill is sold at a discount and pays face value at maturity; a $10,000 bill bought for $9,815 returns $10,000, and the $185 spread is your interest.2TreasuryDirect. Treasury Bills In Depth Standard maturities run 4, 6, 8, 13, 17, 26, and 52 weeks, with a $100 minimum.3TreasuryDirect. When Auctions Happen (Schedules) A CD is a time deposit at a bank or credit union that pays a stated interest rate over a fixed term, usually three months to five years.
The State Tax Exemption Changes the Math
Headline yield is not what you keep. T-Bill interest is fully exempt from state and local income tax.4Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation Federal tax still applies.5Internal Revenue Service. Topic No. 403, Interest Received CD interest gets no such break: it is fully taxable at the federal, state, and local level as ordinary income.
To compare fairly, calculate the T-Bill’s tax-equivalent yield — the rate a taxable CD would need to pay to leave you with the same money after tax. Divide the T-Bill yield by (1 minus your state and local income tax rate).
A worked example. A 26-week T-Bill at 3.75% in a state with a 9% combined state and local income tax rate produces a tax-equivalent yield of 3.75% ÷ (1 − 0.09) = 4.12%. A CD would need to pay at least 4.12% APY just to match. With the best 6-month CDs near 4.15%, the CD barely edges ahead. Drop the state tax rate to 5% and the T-Bill’s tax-equivalent yield falls to about 3.95%, giving CDs a wider lead. Push the state rate above 10% and the T-Bill often wins outright even though its printed yield looks lower.
The rule of thumb: no state income tax, CDs generally win on yield. High state income tax, run the calculation before assuming the higher-yielding CD is actually the better deal.
One timing wrinkle worth knowing. Banks generally report CD interest on Form 1099-INT as it accrues each calendar year, even if you can’t touch the money without a penalty.5Internal Revenue Service. Topic No. 403, Interest Received T-Bill interest is reported in the year the bill matures or is sold.6TreasuryDirect. Interest Income Reporting for Marketable Treasury Securities For short bills the difference is negligible; for a 52-week bill bought late in the year, it can defer a meaningful chunk of income into the next tax year.
If You Might Need the Money Early
T-Bills are liquid. They trade on an active secondary market, so you can sell through a brokerage before maturity with no penalty from the government or the broker. What you receive depends on where interest rates are the day you sell. If rates have climbed since you bought, the bill is worth slightly less than you paid; if they’ve dropped, slightly more. For bills with only weeks left, that price swing is tiny.
Standard CDs are the opposite. Breaking one costs you. Federal rules set a floor of seven days’ simple interest for money pulled within the first six days, but beyond that floor there is no federal cap.7HelpWithMyBank.gov. What Are the Penalties for Withdrawing Money Early From a Certificate of Deposit (CD)? Banks set their own penalties, and 90 to 180 days of interest is common on shorter terms, with some long-term CDs charging a full year of interest or more. Read the penalty schedule before you commit; a bad one can wipe out months of earnings.
Two CD variants soften this. No-penalty CDs let you withdraw the full balance after a short initial holding period (usually seven days) at no cost, but they pay 0.5% to 1% less than a standard CD of the same length and most require you to close the account rather than take a partial withdrawal. Brokered CDs, bought through a brokerage, can be sold on a secondary market without triggering the bank’s penalty, though like T-Bills the sale price moves with rates.
If Rates Move After You Buy
A CD rate locks the moment you fund the account. That cuts both ways. If rates rise after you buy, you’re stuck earning less until maturity. If rates fall, you look prescient. T-Bills force you back into the market at every maturity, which means you capture rate increases faster and absorb rate drops faster.
Investors worried about missing future increases sometimes ladder their CDs, splitting cash across staggered maturities so a portion comes due regularly and gets reinvested at the prevailing rate. T-Bill holders don’t need the workaround; a 13-week bill matures every quarter, and TreasuryDirect can automatically roll the proceeds into a new bill of the same term.8TreasuryDirect. Redeem/Reinvest Treasury Bills
If your view is that rates are about to fall and you want to lock in today’s yield for as long as possible, a CD does that and a T-Bill does not. If your view is that rates will rise or you have no view, T-Bills let the yield move with the market.
Safety, and Why It Matters Above $250,000
Both instruments are extremely safe, but the safety comes from different places. T-Bills carry the direct obligation of the U.S. government. CDs rely on federal deposit insurance: the FDIC covers bank deposits and the NCUA covers credit union deposits, each up to $250,000 per depositor, per institution, for each ownership category.9Federal Deposit Insurance Corporation. Understanding Deposit Insurance10National Credit Union Administration. Share Insurance Coverage
Below the insurance limit, this distinction is academic. Above $250,000 at a single institution, T-Bills have a real edge in simplicity: the government backs the full amount with no cap. Getting the same protection through CDs means splitting deposits across multiple banks. Brokered CDs make that easier, but not effortless.
Which One Fits Your Situation
A few questions settle most cases.
Where do you live? In a high-tax state, run the tax-equivalent yield calculation before dismissing a T-Bill that looks like it pays less. In a state with no income tax, the T-Bill’s advantage disappears and CDs usually win on nominal yield.
How firmly can you commit the money? If there’s any real chance you’ll need it early, T-Bills are the safer choice. Selling one on the secondary market is painless; breaking a standard CD costs real money. A no-penalty CD splits the difference at a lower rate.
Do you have a view on rates? If you want to lock in today’s rate because you think rates are heading down, a CD does that. If you have no view, T-Bills keep pace with the market on their own.
How much are you investing? Under $250,000 at one institution, safety is a tie. Above it, T-Bills protect the full balance without you having to spread deposits around.
Plenty of investors use both. Short-term cash sits in T-Bills for liquidity and the state tax exemption; money you’re confident you won’t touch goes into CDs when the yield premium is enough to justify the lockup.