In most high-tax states, a 4.20% T-bill beats a 4.35% CD after taxes. T-bills vs CDs isn’t just a rate comparison in 2026—it’s a tax question. Every CD roundup publishes the same table: bank name, APY, minimum deposit. They skip the line item that changes the math for about 30 million Americans.

T-bill interest is exempt from state and local income taxes (per IRS Publication 550). CD interest isn’t.

If you live in a state with no income tax — Texas, Florida, Nevada — this doesn’t matter. CDs and T-bills with the same rate give you the same after-tax return. But if you live in California, New York, New Jersey, or any other state that taxes interest income, a T-bill paying 4.20% puts more money in your pocket than a CD paying 4.35%.

I didn’t think about this when I opened my CD ladder last month. I live in Colorado (4.4% state rate), so the impact is moderate. But I ran the numbers for a friend in California, and the gap was big enough that she moved $30,000 from a CD into 4-week T-bills the next day.

Here’s the comparison most people never see.

Quick Verdict: T-Bills vs CDs After State Taxes

Factor	T-Bills	CDs
Top rate (March 2026)	~4.20-4.30%	~4.20% (12-month)
Federal tax	Yes	Yes
State/local tax	No	Yes
FDIC insured	No (backed by US Treasury, arguably safer)	Yes, up to $250K
Minimum	$100 at TreasuryDirect	Varies ($0-$10,000)
Liquidity	4-week to 52-week terms, secondary market	Locked until maturity, early withdrawal penalty
Best for	High-tax state residents, short-term parking	Anyone wanting a guaranteed locked rate

The one-line version: If your state income tax rate is above 5%, run the tax-equivalent yield calculation before defaulting to a CD. You might be leaving 20-50 basis points on the table.

The Math That CD Roundups Skip

It’s called tax-equivalent yield. Simple question: what CD rate would you need to match a T-bill’s after-tax return?

Formula: T-bill rate ÷ (1 - your state tax rate) = CD-equivalent yield

Let me run it for the states where this matters most.

Tax-Equivalent Yield on a 4.20% T-Bill

State	State Tax Rate	T-Bill After-Tax Advantage	CD Rate Needed to Match
California	9.3%	Significant	4.63%
New York (NYC)	10.7% combined	Large	4.70%
New Jersey	8.97%	Significant	4.61%
Oregon	9.9%	Significant	4.66%
Minnesota	7.85%	Moderate	4.56%
Hawaii	8.25%	Moderate	4.58%
Colorado	4.4%	Small	4.39%
Texas / Florida	0%	None	4.20%

A California resident in the 9.3% state bracket would need a CD paying 4.63% to match the after-tax return of a 4.20% T-bill. The best 12-month CD right now pays 4.20%. That’s a 43-basis-point gap. On $50,000, that’s roughly $215 per year that evaporates to Sacramento.

For a New Yorker paying city tax on top of state tax, the gap widens to 50 basis points. On $100,000, you’re giving up about $500 annually by choosing the CD.

These aren’t hypothetical numbers. They’re the actual after-tax difference between two instruments paying nearly identical headline rates.

How T-Bills Work (The 5-Minute Version)

If you’ve never bought a T-bill, the process is simpler than opening a CD.

T-bills are short-term debt issued by the US Treasury. You buy them at a discount and receive the full face value at maturity. The difference is your interest.

Example: You buy a 4-week T-bill with a face value of $10,000. You pay roughly $9,968. Four weeks later, you get $10,000 back. That $32 difference is your interest, annualized to approximately 4.20%.

Where to Buy

1. TreasuryDirect.gov. Direct from the source. No fees, no middleman. $100 minimum. You can set up auto-roll so your T-bill automatically reinvests at maturity. I use this for my core T-bill position.

2. Brokerage accounts — Fidelity, Schwab, and Vanguard all sell T-bills on the secondary market or at auction. Slightly more flexible (you can sell before maturity), but the interface at TreasuryDirect is free and the yield is identical.

Available Terms

Term	Auction Frequency	Current Yield (approx.)
4-week	Weekly	4.22%
8-week	Weekly	4.24%
13-week	Weekly	4.28%
26-week	Weekly	4.25%
52-week	Every 4 weeks	4.18%

Yields approximate as of late March 2026 via TreasuryDirect.

The 4-week and 13-week maturities are the sweet spot for most people. Short enough that you’re not locked up, frequent enough that you can redirect the money if something better comes along.

When CDs Still Win

T-bills aren’t always the better choice. Here’s when a CD makes more sense.

You live in a no-income-tax state. Texas, Florida, Nevada, Wyoming, Washington, South Dakota, Alaska, Tennessee, New Hampshire. With no state tax to dodge, the T-bill’s advantage disappears. A 4.20% CD and a 4.20% T-bill net you the same thing. Pick whichever is more convenient.

You want a rate locked for 12-24 months. T-bills max out at 52 weeks, and most of the volume is in 4-26 week maturities. If you want to lock in today’s rate for 18 or 24 months before the Fed cuts, a CD is the only option. You can’t buy an 18-month T-bill.

You need FDIC insurance specifically. T-bills are backed by the full faith and credit of the US government, which is functionally safer than FDIC (the FDIC itself is backed by the same government). But if your institution or compliance requirements specifically require FDIC coverage, CDs satisfy that box.

You hate fiddling with reinvestment. Even with auto-roll at TreasuryDirect, a 4-week T-bill means your money turns over 13 times a year. A 12-month CD is one decision, one maturity date, one calendar reminder. If you value simplicity over optimization, CDs win on effort.

When T-Bills Win

You’re in California, New York, New Jersey, Oregon, Minnesota, or any state with a tax rate above 5%. The math is clear. A 4.20% T-bill beats a 4.20% CD by 20-50 basis points after tax. At current rates, you’d need a CD paying 4.50%+ to match, and those don’t exist right now.

You want maximum flexibility. A 4-week T-bill ties up your money for, well, four weeks. That’s barely more restrictive than a high-yield savings account. If something comes up, you wait a few weeks. With a CD, you either pay the early withdrawal penalty or wait months.

You want to park cash between investments. Waiting to deploy money into a dividend portfolio or real estate fund? T-bills are the best waiting room. Your money earns 4.2%+ while you decide, and you can redirect it every 4-13 weeks without penalty.

You’re building short-term savings and want tax efficiency. If you have $20,000 earmarked for a down payment in 6 months and you live in New York, a 26-week T-bill earning 4.25% (state-tax-free) beats a 6-month CD at 4.15% (fully taxable) by a meaningful margin.

The Fed Rate Outlook and What It Means for Both

The Fed held at 3.5-3.75% at the March 18 meeting. The dot plot projects one 25-basis-point cut in 2026, likely in December based on the median projection. That means rates should stay stable through at least Q3.

What this means in practice:

T-bill yields track the federal funds rate closely. If the Fed holds through September, expect T-bills to keep paying 4.1-4.3%. After a December cut, they’ll drift toward 3.85-4.05%. The drop won’t be instant — it’ll price in gradually as the market anticipates the move.

CD rates will start falling before the cut happens. Banks adjust their offered CD rates based on expectations, not just the current Fed rate. If September data signals a December cut, don’t be surprised to see top CD rates dip to 3.90-4.00% by October. The best rates available today are pricing in the current pause, not the future cut.

The window for both is open right now. Whether you pick T-bills or CDs, you’re buying at or near peak yields for this cycle. The question isn’t T-bills or CDs — it’s either one versus leaving cash in a checking account at 0.39%.

A Practical T-Bill Ladder (Mimicking a CD Ladder)

You can build a T-bill ladder the same way you’d build a CD ladder, just with shorter rungs.

Example: $20,000 T-Bill Ladder

Rung	Amount	Term	Approx. Yield	Matures
1	$5,000	4-week	4.22%	Late April 2026
2	$5,000	8-week	4.24%	Late May 2026
3	$5,000	13-week	4.28%	Late June 2026
4	$5,000	26-week	4.25%	Late September 2026

Every month or so, a rung matures. Set auto-roll at TreasuryDirect and each T-bill automatically reinvests at the next auction’s rate. You always have money coming due, and in a high-tax state, every dollar of interest avoids your state tax bracket.

Blended yield: ~4.25%, with an effective after-tax yield in California of ~4.68% (CD-equivalent).

I set up a simpler version of this — two rungs at 4-week and 13-week — with about $15,000 at TreasuryDirect. The auto-roll feature does the heavy lifting. I check it maybe once a month to confirm the reinvestment went through.

The Hybrid Strategy: T-Bills + CDs Together

You don’t have to pick one. The optimal approach for most people in high-tax states:

1. Emergency fund in a high-yield savings account — instant access, 4.20% APY
2. Short-term cash (0-6 months) in a T-bill ladder — 4.2%+ yield, state-tax-free, rolling every few weeks
3. Medium-term savings (6-24 months) in CDs — locked rate, protection against future cuts, known maturity dates
4. Long-term investments in equities — dividend ETFs, index funds, or a robo-advisor

The T-bills handle the money you might need relatively soon. The CDs lock in rates for longer stretches where the rate guarantee justifies the state tax hit. Neither replaces the other. They cover different time horizons.

What Most People Should Do

If you live in a no-tax state: just buy whatever has the highest rate between T-bills and CDs. Right now they’re nearly identical. Pick the one that fits your timeline.

If you live in a high-tax state and you’ve been defaulting to CDs or HYSAs without considering T-bills: run the tax-equivalent yield calculation for your state. For the five minutes it takes, you might find that a 4.20% T-bill is netting you more than a 4.35% CD. That was my friend’s situation in California, and it’ll be the situation for anyone paying more than about 5% in state income taxes.

If you’re unsure about the timeline: start with 4-week T-bills at TreasuryDirect. $100 minimum, auto-roll on, state-tax-free. You can always move the money into a longer-term CD later when you have more clarity. There’s no penalty for letting a T-bill mature and not reinvesting.

The Bottom Line

T-bills and CDs are both paying around 4.20% right now. Identical headline rate. But after state taxes, they’re not the same product.

For a California resident, a 4.20% T-bill is equivalent to a 4.63% CD — a rate that doesn’t exist anywhere right now. For a New Yorker with city taxes, the equivalent is 4.70%. The higher your state tax rate, the wider the gap.

With the Fed holding steady and only one cut projected for December, both instruments are near their peak yields for this cycle. The smart move isn’t choosing between them — it’s understanding which one your state tax code makes better for you, and acting before rates drift lower.

TreasuryDirect.gov. $100 minimum. Five minutes. Auto-roll. State-tax-free.

If you’re already earning 4%+ on CDs, you’re ahead of most people. But if your state is taking 5-10% off the top of that interest, you owe it to yourself to run the math on T-bills first.

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Yields approximate as of late March 2026. Tax rates based on 2026 brackets and may vary by income level. T-bills are backed by the US government but not FDIC insured. This is not financial or tax advice — consult a tax professional for your specific situation.