A Treasury bill and a bank CD both pay a fixed rate for a fixed term, so the headline numbers look easy to line up. They are not, for one main reason: the IRS taxes both, but states and cities can tax only the CD. Below we work through that gap with Treasury's October 30, 2026 bill rates and the 2026 tax brackets, then compare what it costs to leave each one early, what protects your principal and how long each can hold a rate. For the rest of our Treasury coverage, start at the Treasuries hub.
Which pays more after tax, a T-bill or a CD?
It depends on your state: at equal headline rates, a T-bill pays more after tax wherever a state income tax applies, and about the same where none does. Interest on Treasury bills is taxable on your federal return but exempt from all state and local income taxes, a rule IRS Publication 550 repeats. CD interest is ordinary bank interest, so your state taxes it the way it taxes wages. Our guide to whether T-bills are taxable covers the reporting details, including which tax year bill interest lands in.
Comparing the two also needs a common yardstick. Treasury quotes a bill by its bank discount rate and its investment rate, and neither one is an APY. On October 30, 2026 the 52-week bill was quoted at a 4.17% discount rate and a 4.36% investment rate. Bought at that price and held for its 364 days, it returns 4.40%, or about 4.41% when restated as an APY, and that last figure is the one to set beside a CD's APY. The guide to the discount rate vs the investment rate shows the conversion step by step.
Worked example: $100,000 for one year in Texas and California
The saver is a single filer whose 2026 taxable income sits in the 24% federal bracket, which runs from $105,700 to $201,775, and who takes the standard deduction. In California that income falls in the 9.3% bracket, which covers single filers' taxable income from $75,197 to $384,109 in 2026. Texas has no personal income tax. The two CD rates are illustrations, not offers.
- Bill: at a 4.17% discount, $100,000 buys $104,400 of face value for $99,998.15, leaving $1.85 in cash. At maturity you receive $104,400, so the interest is $4,401.85.
- CD at 4.41% APY: $4,410.00 of interest after 12 months.
- CD at 4.75% APY: $4,750.00 of interest after 12 months.
| Holding | Interest | Federal tax at 24% | California tax at 9.3% | Kept in Texas | Kept in California |
|---|---|---|---|---|---|
| 52-week bill at a 4.17% discount | $4,401.85 | $1,056.44 | $0.00 | $3,345.41 | $3,345.41 |
| 12-month CD at 4.41% APY | $4,410.00 | $1,058.40 | $410.13 | $3,351.60 | $2,941.47 |
| 12-month CD at 4.75% APY | $4,750.00 | $1,140.00 | $441.75 | $3,610.00 | $3,168.25 |
In Texas the bill and the 4.41% CD finish $6.19 apart, and the 4.75% CD keeps $264.59 more than the bill. In California the order flips: the 4.75% CD keeps $177.16 less than the bill, because $441.75 of its interest goes to the state.
Two refinements matter at the margin. If you itemize deductions, the state income tax you pay can lower your federal tax, subject to the federal cap on that deduction, which trims the bill's edge a little. And if your city taxes income too, bill interest escapes that tax as well, which widens it.
What CD rate matches a T-bill in your state?
Divide the bill's after-federal-tax yield by the share of each CD dollar you keep after federal and state tax, and the result is the CD APY that ties. Written out:
Matching CD APY = bill APY × (1 − federal rate) ÷ (1 − federal rate − state rate)
Here is what that gives for the 52-week bill's 4.41% APY from October 30, 2026, across three federal brackets and three state situations.
| Federal bracket | Texas or Florida (no income tax) | Illinois (flat 4.95%) | California (9.3% bracket) |
|---|---|---|---|
| 22% | 4.41% | 4.71% | 5.01% |
| 24% | 4.41% | 4.72% | 5.03% |
| 32% | 4.41% | 4.76% | 5.11% |
Read across a row to see what the state exemption is worth at your bracket. A Californian in the 32% bracket needs a CD paying 5.11% to equal a 4.41% bill, and any CD below that line leaves money with the state. Illinois taxes individual income at a flat 4.95%, so its column barely moves between brackets. Florida does not impose a personal income tax, and New Hampshire, which used to tax interest and dividends, repealed that tax for periods beginning on or after January 1, 2025.
The formula ignores the federal deduction for state tax, so treat the figures as an upper bound if you itemize. Plug in your own top state rate, and redo the sum when bill rates move, because the matching CD rate moves with them. The Treasury bill calculator turns any discount rate into a price and yield for that step.
What does it cost to get out early?
A CD charges whatever penalty its contract sets, while a T-bill sold early costs, or earns, whatever its market price has done since you bought it. Federal rules set only a floor for CDs: Regulation D requires a penalty of at least seven days' simple interest on money withdrawn within six days of the deposit. There is no federal maximum, as the OCC's consumer help site points out, so each bank sets its own penalty and states it in the account agreement. A long penalty can exceed the interest you have earned, and then the bank takes the difference from principal. The penalty does cut your tax bill: the bank reports it in box 2 of Form 1099-INT, and you deduct it as an adjustment to income.
A bill has no penalty, only a price. Through a broker you can sell any business day at the dealer's bid. A bill held in TreasuryDirect can't be sold there: you must first hold it for 45 calendar days after purchase, then move it to a bank or broker with FS Form 5511, which a certifying official at a bank, trust company or credit union has to sign. Four-week bills can't be transferred at all. Our guide to selling Treasuries before maturity walks through both routes.
Worked example: Cashing out five months into a one-year commitment
Both positions start with $100,000 on October 30, 2026 and end after 152 days, with 212 days still to run. The CD's 4.41% APY comes from a 4.32% rate compounded daily, and the penalties below are simple interest at 4.32% on the full balance. The bill is the $104,400 face position from the first example, sold at the market discount rate for a 212-day bill. Dealer markups are ignored.
| Exit after 152 days | Gain or loss on $100,000 |
|---|---|
| CD with a penalty of 90 days' interest | Gain of $749 |
| CD with a penalty of 180 days' interest | Loss of $315 |
| Bill, market rate unchanged at 4.17% | Gain of $1,838 |
| Bill, market rate half a point higher at 4.67% | Gain of $1,531 |
| Bill, market rate half a point lower at 3.67% | Gain of $2,146 |
The CD earned about $1,813 before the penalty. A 90-day penalty takes about $1,064 of that, while a 180-day penalty takes about $2,128, which is more than the interest, so $315 comes out of principal. The bill's sale value is its face amount discounted for 212 days at whatever rate the market sets, and a half-point move in that rate shifts the price by about $307 either way.
The pattern holds beyond this example. A bill's exit cost is unknown in advance but tends to be modest on short terms, because a given rate change moves the price of a bill with a few months left far less than one with a year left. A CD's exit cost is known in advance and can be large. If there is a real chance you will need the money before maturity, read the penalty clause before you compare rates.
Is FDIC insurance as strong as US government backing?
Both protect principal well but differently: FDIC insurance covers deposits up to a cap if a bank fails, while bills carry the federal government's promise with no cap. Deposit insurance covers $250,000 per depositor, per insured bank, per ownership category, and the FDIC counts accrued interest inside that limit. Treasury bills appear on the FDIC's own list of products it does not insure, next to stocks and mutual funds, because they are backed instead by the full faith and credit of the US government.
For a household placing $100,000 the difference is mostly academic. For $600,000 it is practical: keeping that much fully insured in CDs means spreading it across banks or ownership categories, which our guide to insuring more than $250,000 explains, while one Treasury account can hold the whole amount in bills.
Where the CD or bill is held adds a second layer. A bill at a brokerage is covered by SIPC if the firm fails and your securities go missing, up to $500,000 per customer, including up to $250,000 in cash, but SIPC does not cover a drop in market value. A CD bought through a broker is insured only if the broker actually places your money with an FDIC-insured bank, and the FDIC notes that it does not license or register deposit brokers. That CD also counts toward the limit alongside any other deposits you hold at the same bank. The FDIC insurance guide and our explainer on FDIC vs SIPC cover the rules in full.
How long can you lock in a rate?
A T-bill fixes its rate for 52 weeks at most; bank CDs usually run three months to five years or more. Treasury sells bills in terms of 4, 6, 8, 13, 17, 26 and 52 weeks, while the FDIC describes typical CD terms as three months to five years or longer, and the SEC notes that brokered CDs can run from six months to 30 years. If you want federal backing for longer than a year, that is the job of Treasury notes, which run two to 10 years.
Lock length cuts both ways. When rates fall, a three-year CD keeps paying its old rate while a bill holder rolls into lower yields every time a bill matures, which is reinvestment risk. When rates rise, the bill holder catches up within weeks or months while the CD holder either waits or pays a penalty to switch.
Renewal works differently too. TreasuryDirect lets you schedule reinvestment into a new bill of the same term at whatever rate the next auction sets. Many CDs renew automatically, and the FDIC suggests checking before you buy whether a renewal would happen at the old rate or the rate on the renewal date. If you want money coming due at regular intervals instead of a single lock, a ladder spreads it across maturities; see the T-bill ladder guide and the CD ladder guide.
Where do brokered and callable CDs fit?
Brokered CDs are bank deposits bought through a brokerage and sold, not redeemed, before maturity; callable CDs let the issuing bank end them early. A brokered CD usually carries no early withdrawal penalty, but the only way out is a sale on the secondary market, where the price falls if rates have risen. The SEC warns that some brokered CDs have no secondary market at all, and that their interest is generally paid out in cash rather than compounded. In practice a brokered CD behaves more like a bill than a bank CD does, with FDIC insurance in place of Treasury backing and usually a thinner market. Fees and mechanics are in our brokered CDs guide.
A callable CD gives the bank, not you, the right to end the deal after a set date. As the FDIC explains, a bank is most likely to call when rates have fallen, returning your money plus accrued interest just when reinvesting it pays less. Bills have no call feature, so the yield you buy is the yield you get if you hold to maturity. For the basics of how bank CDs and their penalties work, see what a CD is.
What are the risks of T-bills and CDs?
Held to maturity within protection limits, neither is likely to lose principal; the practical risks are inflation, reinvestment, exit costs and, for CDs, insurance gaps.
- Inflation. Both pay a fixed number of dollars. The best after-tax result in our first example was $3,610 on $100,000, or 3.61%, while consumer prices rose 3.7% in the 12 months to September 2026, according to the Bureau of Labor Statistics. A positive yield can still lose purchasing power; see real returns and inflation.
- Reinvestment. Bills mature within a year, so a drop in rates reaches you quickly. A CD shields you for its full term, and a callable CD only until the bank calls it.
- Price before maturity. A bill or brokered CD sold early can fetch less than you paid plus the interest you expected if rates have risen. Held to maturity, a bill pays its full face value.
- Penalties. A bank CD's penalty can be larger than the interest earned and eat into principal.
- Insurance limits. Deposits above the FDIC limit at one bank, or titled in the wrong ownership category, are uninsured. Bills have no such cap, though their market value still moves day to day.
- Access. Bills in TreasuryDirect need a holding period and a signed transfer form before you can sell them, which takes time you may not have in an emergency.
Our page on whether Treasuries are risk-free looks at each of the Treasury risks in more depth.
Which one fits your situation?
Match the product to the job: bills suit state-taxed cash needed within a year, while CDs suit long rate locks and no-tax states with a better headline rate.
| Your situation | Tends to favor | Main reason |
|---|---|---|
| You pay state income tax and need the money within a year | T-bills | Interest is free of state and local income tax |
| No state income tax, and a CD's APY beats the bill's APY | CD | Only the IRS taxes either, so the headline rate decides |
| You want one rate for three to five years | CD or a Treasury note | Bills max out at 52 weeks |
| You might need the money before maturity | Bills held at a broker | No contractual penalty, and you can sell any business day |
| You have more than the FDIC limit to place | T-bills | Government backing has no per-person cap |
| You want everything at a bank you already use | CD | No new account or transfer paperwork |
Whichever you lean toward, run your own numbers with today's quotes rather than ours. The compound interest calculator projects a CD's balance at its APY, and the Treasury bill calculator above prices the bill side. If your cash sits in a savings account rather than a CD, our comparison of T-bills vs high-yield savings runs a six-month example. For fund-based routes into bills, see T-bills vs money market funds and T-bill ETFs vs buying T-bills.