Treasury Bills vs CDs: Which Pays More?

Nearly every Treasury bills vs CDs article compares one headline rate to another and calls it a day. That comparison is broken before it starts, because the two products are not taxed the same way.

So we ran it properly. DollarVisor pulled the Federal Reserve’s published bill yields, the FDIC’s national CD averages, and one large online bank’s live CD board. Then we worked out the CD rate you would need in ten different states just to break even on Treasury bills vs CDs. Companies cannot pay for placement in our rankings.

Here is a short explainer on how the two products differ before we get to the tables.

1. Which One Should You Buy?

Quick Answer: Our pick is the Treasury bill for most savers, especially anyone in a state with an income tax. Buy a CD instead when your bank pays a rate that clears the break-even in Section 3, or when you want the money locked somewhere you will not touch. Both belong in the safe corner of your portfolio, not the growth corner.

Treasury bills vs CDs is less about which pays more on paper and more about where you live and how soon you need the cash.

• You live in California, New York or another high-tax state. Treasury bill. The state tax exemption is worth more than any rate a bank is advertising.
• You live in Texas, Florida or another no-income-tax state. Closer call. Compare the two headline rates directly and take the higher one.
• Your bank is paying a promotional CD rate above 4.4%. CD. That clears the break-even in every state on our list.
• You might need the money in three months. Treasury bill. You can sell it without a penalty; a CD charges you to leave.
• You want the money out of sight. CD. The penalty is the point: it stops you raiding the account.

2. What Do T-Bills and CDs Pay Right Now?

Quick Answer: A 1-year Treasury bill yielded 3.97% on August 13, 2026, while the FDIC’s national average 1-year CD paid 1.65%. That 2.32-point gap is the headline number in any Treasury bills vs CDs comparison. The average is dragged down by big branch banks, so where you park cash matters as much as what you park it in.

Two rates are worth knowing for each term: the bill yield, and the CD average across every insured bank and credit union in the country.

Do not take that 1.65% as what a good bank pays. It is deposit-weighted, so the giant branch networks paying almost nothing drag it down. Ally Bank’s own board showed a 3.5% high-yield CD on August 14, 2026, which is a much fairer opponent.

On $25,000 for a year, that is $993 from the bill, $875 from the Ally CD, and $413 from the national average. So the real Treasury bills vs CDs fight is between the first two.

3. What CD Rate Beats a T-Bill in Your State?

Quick Answer: In California you need a 4.38% CD to match a 3.97% Treasury bill. In Texas or Florida you only need 3.97%. Treasury interest is exempt from state and local income tax, so the same bill is worth more to you the higher your state rate. This one number settles most Treasury bills vs CDs comparisons, and it is the number almost all of them leave out. It applies to every Treasury security you can buy, not just bills.

The exemption is not a loophole. The Treasury states plainly that what you earn on its marketable securities is subject to federal tax but exempt from state and local taxes. CD interest gets no such break: it is ordinary interest income reported on a 1099-INT, per IRS Topic 403.

Read that Texas row carefully. Even where the state takes nothing, the 3.5% CD still trails, because the bill simply pays more. The state exemption widens a gap that already existed.

4. How Has the Gap Moved in 2026?

Quick Answer: It has widened. In March the 1-year Treasury bill led the average 1-year CD by 2.14 points; by July the lead was 2.34 points. Bill yields rose faster than banks moved their deposit boards, which is the usual pattern and one reason bank rates lag the market in both directions.

Five months of matched data show the shape clearly. Treasury yields reprice daily; the FDIC average moves once a month and slowly.

The CD average did climb, from 1.52% to 1.68% over five months. It just could not keep up. Banks raise deposit rates when they need funding, not when the bond market moves, which is why Treasury bills vs CDs looks different in a rising-rate stretch than in a falling one.

5. What If You Need the Money Early?

Quick Answer: A CD charges you a fixed penalty in months of interest. A Treasury bill has no penalty at all: you sell it at whatever the market pays that day, which can be slightly above or below what you paid. On a $25,000 five-year CD, a 150-day penalty costs $360, and some banks charge a full year of interest. Liquidity is where Treasury bills vs CDs stops being about rates, and it is why an emergency fund usually belongs in an account you can drain on any day.

Penalties are set by the bank, not by law, and they scale with the term. Ally publishes a structure it describes as common across the industry.

Selling a bill early is not free of risk either. If yields have risen since you bought, the price will be lower and you take a small loss. But there is no fee, and on short bills the price barely moves.

6. When Is a CD Actually the Better Buy?

Quick Answer: Treasury bills vs CDs flips to the CD in three cases. You want to lock a rate for longer than a year. Your bank is running a promotional rate above your break-even. Or you will simply never open a brokerage account. CDs also stretch to five-year terms, while bills top out at 52 weeks: longer locks belong in a laddered structure either way.

The case for the CD is real, it is just narrower than the marketing suggests. Here is where Treasury bills vs CDs tips toward the bank.

• You want a rate locked past 12 months. Treasury bills stop at 52 weeks. A 3-year or 5-year CD holds its rate through a whole cycle of cuts.
• Your bank is running a promotion. Banks chasing deposits post rates well above their normal board. If it clears your break-even, take it.
• You want FDIC insurance, not a government guarantee. Both are about as safe as money gets, but some savers only trust the label they know.
• You will not manage a brokerage or TreasuryDirect account. A CD at your existing bank takes five minutes. The best product is the one you actually open.
• You want the money hard to reach. The penalty is a feature if you have raided a savings account before.

One warning. A brokered CD bought through a brokerage account behaves differently from a bank CD. There is no early withdrawal penalty. Instead you have to sell it on the secondary market at whatever price it fetches that day.

7. How Do You Buy Each One?

Quick Answer: Buy bills directly at TreasuryDirect with no fee, or through a brokerage account at auction. Open a CD at any bank or credit union online in a few minutes. The full walkthrough for bills sits in our guide to buying Treasury securities.

How to decide between a T-bill and a CD

Five steps, in this order. The order matters because step two often ends the discussion.

1. Write down when you need the money. Under 12 months points to a bill. Over three years points to a CD, because bills do not go that long.
2. Look up your state marginal tax rate. Divide the current bill yield by one minus that rate. That is your break-even CD rate.
3. Shop CDs against that number, not against the bill yield. A 4.1% CD looks like a winner and is not, if you live in California.
4. Check the penalty before you sign. Find the days-of-interest figure in the deposit agreement and convert it to dollars on your balance.
5. Set a reminder for the maturity date. CDs roll over automatically at whatever rate is posted that day, which is often a poor one.

Step five catches more people than any other. A 12-month CD that quietly renews at the going rate can undo a year of careful shopping.

8. The Verdict

Quick Answer: Treasury bills win for most savers on money they need back within a year. Buy a CD when you need a lock longer than 12 months, or when a promotional rate clears your state break-even. Everything else in Treasury bills vs CDs is a rounding error next to those two tests.

On the plain numbers, Treasury bills vs CDs is lopsided. A 1-year bill pays 3.97% while the national average 1-year CD pays 1.65%, and the average has trailed by more than two points every month since March.

Against a strong online CD at 3.5% the gap narrows to under half a point, until you add the tax. Then a Californian needs 4.38% and a New Yorker 4.22% just to draw level, rates that only appear in short promotions.

The flexibility argument points the same direction. A bill can be sold any day with no fee; a five-year CD can cost $875 to escape on a $25,000 balance.

None of which makes CDs a bad product. They are the right answer for a three-year lock, for a promotional rate, and for anyone who will never open a brokerage account. Just check your break-even first. Treat the advertised APY as the start of the math, not the end of it. That is the same discipline you would use picking between near-identical funds or comparing two cards with similar headline rewards.

This article is for information only and is not financial or tax advice. Rates and tax rules change; confirm current figures with the issuer and your tax advisor. See our disclaimer.

9. Frequently Asked Questions

1. Do Treasury bills pay more than CDs right now?

Yes. On August 13, 2026 a 1-year Treasury bill yielded 3.97% while the FDIC’s national average 1-year CD paid 1.65%, a gap of 2.32 percentage points. Competitive online banks are much closer (Ally listed a 3.5% high-yield CD on August 14, 2026) but the bill still led before any tax adjustment.

2. Are Treasury bills taxed differently from CDs?

Yes, and this is the main reason to prefer them. Treasury interest is subject to federal income tax but exempt from state and local income tax. CD interest is fully taxable at both levels. In a 9.3% state, that exemption is worth roughly 0.4 percentage points of extra yield on an equivalent rate.

3. What CD rate do I need to beat a T-bill?

Divide the bill yield by one minus your state marginal tax rate. At a 3.97% bill yield, the break-even is 4.38% in California, 4.22% in New York, 4.08% in Ohio, and 3.97% in Texas or Florida where there is no state income tax.

4. Which is safer, a T-bill or a CD?

Both are about as safe as US savings products get, through different mechanisms. A Treasury bill is backed by the full faith and credit of the US government with no dollar limit. A CD is protected by FDIC or NCUA insurance up to the applicable coverage limit per depositor, per institution.

5. Can I get my money out of a Treasury bill early?

Yes, by selling it on the secondary market through a broker. There is no penalty, but you get the market price that day, which can be a little above or below what you paid. A CD instead charges a set penalty, commonly 60 to 150 days of interest depending on the term.