T-Bills vs CDs (2026), When State Tax Exemption Flips the Math

What's actually the same

• Both are default-free for practical purposes (CDs under $250K via FDIC; T-bills via Treasury direct obligation).
• Both are taxable federally as ordinary income, reported on Form 1099-INT.
• Both are short-duration cash instruments with fixed maturity dates.
• Both are easy to ladder.

What's different

When the CD wins

• You live in Florida, Texas, Nevada, Tennessee, Washington, Wyoming, South Dakota, Alaska, or New Hampshire. Zero state income tax to capture. Take the higher CD yield.
• Your bank is running a promotional rate. If a promo CD beats the 52-week T-bill (4.48% on September 25, 2026) by more than your state-tax savings (about 0.46 point at California's 10.3% bracket), the CD's extra interest wins.
• You're under $50K and value one-click simplicity. Online bank CDs open in 5 minutes. TreasuryDirect requires a separate account, identity verification, and a tax-document download every January.
• You want set-and-forget for one year. A 12-month CD auto-matures and rolls. A T-bill ladder requires you to monitor auction dates or set auto-reinvest.
• You want full FDIC protection on funds adjacent to checking. Same-bank CD rolls back into the linked account on maturity, no transfer.

When the T-bill wins

• You live in California, New York, Oregon, New Jersey, Hawaii, or Minnesota. State income tax brackets at 9-13% make the T-bill state-exempt status worth 40-100 basis points of after-tax yield, usually enough to flip the comparison.
• You're parking more than $250,000. FDIC caps at $250K per depositor per bank. To FDIC-cover $750K you need 3 banks. T-bills have unlimited backing.
• You might need the cash on short notice. T-bills sell on the secondary market any business day at near-par for short maturities. CD penalties are bigger than people remember (often 6 months of interest, sometimes more).
• You have business cash or trust account funds. Same FDIC cap problem, plus Treasury direct ownership often simplifies trust/estate documentation.
• You want to ladder weekly. Bank CDs don't offer 4-week ladders. T-bills do.

Worked example: $250,000 over 12 months

California resident (top federal + 10.3% state)

Option A: 12-month CD at 5.00%. Gross interest: $12,500. Federal tax 37%: $4,625. State tax 10.3%: $1,288. After-tax: $6,587.

Option B: 52-week T-bill at 4.05%. Gross interest: $10,125. Federal tax 37%: $3,746. State tax 0%: $0. After-tax: $6,379.

Result: CD wins by $208 even after the tax disadvantage. The 95-bp headline gap is just barely too wide for the state-tax exemption to close. If the CD yield were 4.80%, the T-bill would win. Always run the math at your actual rate.

NYC resident (top federal + 10.9% NY + 3.876% NYC = 14.78% state/local)

Option A: 12-month CD at 5.00%. Gross: $12,500. Federal: $4,625. State/local: $1,848. After-tax: $6,027.

Option B: 52-week T-bill at 4.05%. Gross: $10,125. Federal: $3,746. State/local: $0. After-tax: $6,379.

Result: T-bill wins by $352. NYC's combined rate is brutal enough that the T-bill flips the comparison even with the 95-bp headline gap.

Texas resident (top federal, no state)

Option A: 12-month CD at 5.00%. After-tax: $7,875.

Option B: 52-week T-bill at 4.05%. After-tax: $6,379.

Result: CD wins by $1,496. Take the CD.

The MYGA contrast (when neither short option is right)

If you're stretching this comparison across 3, 5, or 7 years (which most retirees implicitly are when they "ladder short"), you're leaving yield on the table by avoiding MYGAs. A-rated 5-year MYGAs paid about 5.80-6.00% on September 24, 2026 (AnnuityRateWatch), vs. 4.98% for the 5-year Treasury (September 25, 2026) or 4.35-4.50% for the best 5-year CDs. On $250K over 5 years, versus the Treasury that's roughly $12,000-$16,000 more interest, tax-deferred (so it compounds gross). The trade-off is liquidity: MYGAs allow 10% per year of free withdrawal, with surrender charges beyond that.

The clean playbook: T-bills for the 6-18 month bucket you might need; MYGA for the 3-10 year bucket you're confident you can leave; equities for the 10-30 year bucket. CDs are the middle child that often loses to both T-bills (after-tax) and MYGAs (yield).

FAQ

Why are T-bill yields lower than CD yields?

Two reasons. First, T-bills are the safest dollar instrument on earth, and the 'flight to safety' demand bids the yield down. Second, banks pay up for deposits to fund lending, especially when competing for new account growth. The gap is normal and ranges from 20-100 basis points depending on the rate cycle.

Are CDs riskier than T-bills?

Under $250K per depositor per bank, no. FDIC is backed by the full faith and credit of the U.S. government. Above $250K with one bank, yes. The excess is uninsured. T-bills have no cap.

Can I sell a CD early?

Not without penalty. Most banks charge 90-180 days of interest as the early-withdrawal penalty (some longer-term CDs charge 12 months). Some no-penalty CDs exist but pay 30-60 bps less yield. Brokered CDs trade on a secondary market and can be sold like bonds, with mark-to-market risk.

Can I sell a T-bill early?

Yes, any business day on the secondary market through your brokerage. For 4-26 week bills, the price stays close to par because the duration is so short. The 52-week can move 1-2% in a rate spike.

What about brokered CDs?

Brokered CDs are a hybrid. Still FDIC-insured per issuing bank, but they trade like bonds. You can sell early at market price. Yields are usually 10-30 bps higher than direct bank CDs. They lose the simplicity advantage and gain marketability.

Do T-bills count toward FDIC limits?

No. T-bills are direct Treasury obligations. They're not bank deposits, so FDIC doesn't apply. They're backed by the U.S. Treasury directly, with unlimited coverage.

Should I split my cash between CDs and T-bills?

Often, yes. CDs for the first $250K at your primary bank (full FDIC coverage and possibly promo yields). T-bills for additional cash above $250K and for the portion you might need to deploy quickly.

How do I compute the after-tax break-even between a CD and a T-bill?

Break-even CD yield = T-bill yield / (1 minus state tax rate). For a California resident in the 10.3% bracket: the 52-week T-bill at 4.48% (September 25, 2026) breaks even with a CD at 4.48% / 0.897 = 4.99%. Any CD yielding under about 5.0% loses to that T-bill on an after-tax basis.

Related reading

• T-bills explained: the mechanics in detail
• T-bills vs HYSA
• State tax on Treasury interest, the federal exemption
• T-bills vs MYGA: liquidity vs yield
• CD vs T-Bill (from the CD-side write-up)
• Best MYGA Rates 2026

Before you ladder a year of short CDs: see the MYGA option

Hans Goldstein, independent licensed insurance producer.

Short CDs and T-bills both make sense for 3-12 month money. For 3-10 year money, a MYGA from an A-rated carrier typically pays 100-140 basis points more than either, tax-deferred. Worth running the after-tax math at your state bracket before you commit a year of cash to either.

Send your details and within one business day you'll get a written side-by-side: the Treasury option vs. the top 3 MYGAs from A-rated carriers at the same term, end-of-term math at your actual dollar amount, and after-tax yield computed at your state bracket. We’ll email it to you.

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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers

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Disclosure

This review reflects publicly available Treasury auction results, TreasuryDirect documentation, and approximate market yields as of the date stated above. Treasury yields change daily; current yields differ from prior auctions and may differ from those shown here. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific security or insurance product. U.S. Treasury securities are backed by the full faith and credit of the United States Government. MYGA references compare Treasury yields against approximate rates from A-rated insurance carriers as of the date stated; carrier rates change monthly. State guaranty fund coverage on annuities is provided by the state insurance department and varies by state (typically $250,000-$300,000 per owner per carrier). Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he is NOT a registered investment advisor, broker-dealer, or registered representative, and is not paid by the U.S. Treasury, TreasuryDirect, or any brokerage for this review. No compensation has been received from any third party in connection with this content. Always read the actual offering documents and consult a licensed advisor before purchasing any security or annuity. Tax discussion of 31 U.S.C. §3124 and Internal Revenue Code provisions reflects law as of 2026 and is subject to change.