Best Place for Cash 2026: The Verdict, Line by Line

The verdict, in one paragraph

You have $10,000 of cash to park for a year. The CD advertises the highest rate — 4.75% beats the T-bill’s 4.616% before tax, by $13.40. But the CD’s interest is taxed at federal plus state, while the T-bill’s interest is taxed at federal only. At 22% federal and 5% state, the state tax costs the CD $23.75 — more than its entire rate lead. After tax the ranking is T-bill $360.05 > CD $346.75 > savings $321.20 > fund $280.32. The CD never had a chance at these brackets. Run your own numbers in the 4-way after-tax calculator.

The exemption, anatomized

The whole showdown turns on 31 U.S.C. §3124: interest on direct U.S. obligations is exempt from state and local income tax. A T-bill is a direct obligation, so every dollar of its interest skips your state return — the calculator simply multiplies by (1 − federal). Everything else on the board — the CD, the savings account, the money market fund — is taxed at (1 − federal − state). The exemption is worth exactly state-rate × interest: at 5% state on $461.60 of T-bill interest, that is $23.08 a year on $10,000 for holding Treasury paper instead of bank paper. It is not a loophole; it is the law working as written.

One nuance matters for the fund leg. A money market fund is not a direct obligation, so its income is only state-exempt to the extent it came from U.S. government obligations. The default VMFXX-style federal fund holds Treasuries plus repos and agency paper — Vanguard’s 2025 tax supplement put only 66.61% of VMFXX’s income from U.S. government obligations. Our calculator follows the run-187 page’s exact treatment and taxes the default fund at federal + state on all its income; the Treasury-only toggle models VUSXX (100% state-exempt in 2025, 3.92% yield), which keeps $305.76 instead of $280.32. And in California, Connecticut, and New York, a fund must hold 50%+ in government obligations at each quarter-end before any of its income escapes state tax.

The worked example, line by line

Setup: $10,000; 4.616% T-bill (52-week, Sep 29, 2026 auction); 4.75% top 1-year CD (Bankrate, Oct 11, 2026); 4.40% top online savings (Bankrate, Oct 2026); 3.84% VMFXX 7-day SEC yield (Oct 23, 2026); 22% federal; 5% state.

Line 1 — the gross. T-bill $461.60. CD $475.00. Savings $440.00. Fund $384.00. The CD leads by $13.40 — the headline race is its to lose.

Line 2 — the tax. T-bill: $461.60 × 0.78 = $360.05 (3.600% effective). CD: $475 × 0.73 = $346.75 (3.468%). Savings: $425 × 0.73 = $321.20 (3.212%). Fund: $384 × 0.73 = $280.32 (2.803%). The state tax erases the CD’s $13.40 lead and then takes another $10.35 — the exemption is a $23.75 swing on the CD duel alone.

Line 3 — the verdict. $360.05 > $346.75 > $321.20 > $280.32: T-bills win by $13.30 (0.133 pp) over the CD, $38.85 over savings, and $79.73 over the fund. Nothing on the board clears the 4.93% break-even CD rate — the CD yield that would exactly match the T-bill after tax at these brackets.

Four scenarios where the crown changes hands

No-tax state (22% federal, 0% state). The CD keeps $475 × 0.78 = $370.50 against the T-bill’s $360.05 — the CD wins by $10.45 (0.105 pp). With no state tax, the exemption has nothing to exempt, and the higher headline rate wins outright. Savings keeps $343.20; the fund $299.52.

California (32% federal + 9.3% state). The T-bill keeps $461.60 × 0.68 = $313.89 — California cannot touch it. The CD keeps $475 × 0.587 = $278.82; savings $258.28; the fund $225.41 — T-bills win by $35.06 (0.351 pp). High combined brackets are where the exemption does its heaviest lifting.

6-month term (26-week bill 4.372% vs 4.75% CD, pro-rated). The T-bill earns half a year at the 26-week rate: $218.60 × 0.78 = $170.51. The CD earns $237.50 × 0.73 = $173.38 — the CD wins by $2.87 (0.029 pp). Shorter paper means a smaller tax bill in absolute dollars, and the CD’s rate lead fits inside the half-year. Term alone flips the crown.

Texas, 37% bracket (no state tax). T-bill: $461.60 × 0.63 = $290.81. CD: $475 × 0.63 = $299.25 — the CD wins by $8.44 (0.084 pp). Even at the top federal bracket, with no state tax the exemption has nothing to work with — headline rate decides again.

The break-even CD rate

Memorize this formula: break-even CD = T-bill rate × (1 − federal) ÷ (1 − federal − state) — at the defaults, 4.616% × 0.78 ÷ 0.73 = 4.93%. Any 1-year CD above 4.93% beats T-bills at these tax rates; anything below loses. Flip it into a rule of thumb: a bank rate’s tax-equivalent yield is the bank rate × (1 − your state tax) — compare it straight to the T-bill rate. At 5% state the CD’s 4.75% is worth 4.5125% and savings’ 4.40% is worth 4.18%, both short of 4.616%. In California the break-even climbs to 5.35%; in a no-income-tax state the multiplier is 1 and the T-bill’s advantage disappears entirely.

Three mistakes to avoid

Mistake 1 — comparing headline rates. The 4.75% vs 4.616% comparison is the trap the whole page exists to defuse. After-tax yield is the only yield that spends. Always multiply by (1 − your combined rate) before comparing — or let the calculator do it.

Mistake 2 — forgetting the fund’s fine print. A money market fund’s 7-day SEC yield is a snapshot that moves daily, its income arrives on 1099-DIV (not 1099-INT), and the state-exempt share is your job to claim from the fund’s tax supplement — the 1099 does not break it out. Miss it and you overpay state tax on income the law exempts. And the fund is not FDIC-insured: SIPC at a brokerage covers broker failure, not investment loss.

Mistake 3 — locking the wrong term. A CD locks your rate and your money; an early withdrawal typically costs months of interest. A T-bill must be held to maturity or sold on the secondary market. Savings pays less precisely because it asks nothing of you. Match the vehicle to when you need the cash, not just to the yield — the dollar gaps above are the price of convenience, and sometimes convenience is correctly worth it. Also note the tax timing: T-bill interest is taxed in the year the bill matures or is sold; CD interest is taxed yearly as it accrues.

Go deeper on each duel

The showdown above is the summary; each pairing has its own full page with branches, error cases, and the fine print: T-Bills vs CDs (the exemption against a locked CD), T-Bills vs Money Market Funds (the VMFXX vs VUSXX toggle in full), I Bonds vs T-Bills (the inflation cousin with its penalty and cap), and Savings Account vs CD (rate lock vs liquidity, no Treasury side). Run all four through your own brackets before you park the cash.