GUIDE · MONEY · CASH YIELDS
T-Bills vs CDs: After-Tax Guide 2026 | Bright Side Kit
A 4.616% T-bill and a 4.75% 1-year CD, $10,000, 22% federal, 5% state: the T-bill keeps $360.05 after tax, the CD keeps $346.75 — T-bills win by $13.30. Below: the math line by line, why the state tax field is the whole duel, the no-tax-state and high-bracket branches, when each product wins, and the three mistakes that cost people the edge.
The 60-second rule
The headline rate is not what you keep — the tax code is. A CD’s interest is taxed at your federal bracket plus your state bracket. A T-bill’s interest is taxed at your federal bracket only, because federal law (31 U.S.C. §3124) bars states from taxing interest on U.S. obligations. At the October 2026 defaults — a 4.616% 52-week T-bill against a 4.75% 1-year CD — the state-tax asymmetry erases the CD’s 0.134-point rate lead: $360.05 vs $346.75 after tax, T-bills win by $13.30 on $10,000.
The math, line by line
The setup: $10,000, a 4.616% T-bill (the 52-week bill’s investment rate at the September 29, 2026 auction), a 4.75% APY CD (the top nationally-available 1-year CD — Bankrate, October 11, 2026), a 22% federal bracket, and a 5% state bracket.
Line 1 — the gross. The T-bill earns $10,000 × 4.616% = $461.60. The CD earns $10,000 × 4.75% = $475.00 — APY already includes compounding, so this is the whole year’s interest. The CD starts ahead by $13.40. That is the temptation the bank banner is selling.
Line 2 — the tax. The T-bill pays federal tax only: $461.60 × (1 − 0.22) = $360.05 kept, an effective yield of 3.600%. The CD pays federal and state: $475 × (1 − 0.22 − 0.05) = $475 × 0.73 = $346.75 kept, an effective yield of 3.468%. The state’s $23.75 bite on the CD is the exact value of the T-bill’s exemption.
Line 3 — the gap. $360.05 − $346.75 = $13.30 a year on $10,000; 3.600% − 3.468% = 0.133 percentage points — T-bills win. Small in absolute dollars, decisive as a rule: at 22% federal, the CD needs about 4.93% APY — roughly 0.3 points more than the T-bill — to survive the state tax.
Why state tax changes the winner
The federal bracket hits both sides identically — it cancels out. What survives is the asymmetric tax: your state bracket lands on the CD and slides off the T-bill. The duel is never really 4.75% vs 4.616%; it is the CD’s APY against the T-bill rate after the state tax shaves the CD down. In a no-tax state it becomes a straight rate race — and the CD wins. In a high-tax state the handicap is bigger than any rate table can overcome. Your state field is not a footnote; it is the race.
The three branches, explained
Branch 1 — no-tax state (state 0%, everything else at default). The CD pays federal tax only: $475 × 0.78 = $370.50, against the same $360.05 T-bill outcome. CDs win by $10.45 (0.105 pp). With no state tax there is no asymmetry, and the higher headline rate wins outright — the flip is real. If you live in Florida, Texas, Washington, Nevada, Wyoming, South Dakota, or Alaska — this branch is your answer.
Branch 2 — high bracket (32% federal + 9.3% state). The T-bill keeps $461.60 × 0.68 = $313.89; the CD keeps $475 × (1 − 0.32 − 0.093) = $475 × 0.587 = $278.83. T-bills win by $35.06 (0.351 pp) — the exemption is worth more the higher your taxes are.
Alternate terms — 6 months (26-week bill 4.314% vs 6-month CD 4.40%). Same math on shorter paper: T-bill $431.40 × 0.78 = $336.49 after tax; CD $440 × 0.73 = $321.20 — T-bills win by $15.29 (0.153 pp).
Branch 3 — the error case. Type federal + state at 100% or more and the calculator refuses — real combined brackets live well under 50%, so 100%+ means a typo.
When each one wins
T-bills win in every state that has an income tax, at the October 2026 rate table. They also win on liquidity: bills can be sold on the secondary market any business day with no penalty, while a CD’s early-withdrawal fee runs 3–6 months of interest. The catch is reinvestment risk — each new bill pays the next auction’s rate.
CDs win in no-tax states, wherever the APY lead survives the state bite, and when you value rate certainty: the APY is locked for the full year. For someone who will not touch the money and whose state levies no income tax, the CD is the honest winner — by $10.45 on $10,000 at the October 2026 defaults.
The three mistakes
Mistake 1 — comparing 4.75% to 4.616%. Headline-to-headline, the CD “wins” by 0.134 points. After tax at 22% federal + 5% state, the T-bill wins by 0.133 points — the comparison inverts. Never compare pre-tax rates across product types with different tax treatment; compare effective after-tax yields, which is exactly what the calculator reports.
Mistake 2 — forgetting the state field. It is the only asymmetric input on the page; a 5-point swing in it moves the gap by $23.75 on $10,000 at the default rates — nearly 2× the final margin.
Mistake 3 — chasing the banner rate at your own bank. The 4.75% default is the October 2026 top-of-table figure; most banks pay far less (the national average 1-year CD sat near 1.76% that month). Enter the rate you can actually get — not the banner you saw.
Frequently asked questions
Do T-bills beat CDs right now?
In any state with an income tax, yes: $360.05 vs $346.75 — T-bills win by $13.30 on $10,000 at the October 2026 defaults. In a no-tax state, CDs win by $10.45. Run the calculator with the two rates you can actually get.
Why is the T-bill exempt from state tax?
Federal law — 31 U.S.C. §3124 — bars states and localities from taxing interest on obligations of the United States. T-bills are such obligations; bank CDs are not. The federal bracket hits both sides equally; only the state tax creates the asymmetry.
Can I buy a T-bill with $10,000 easily?
Yes — the minimum is $100 in $100 increments, at TreasuryDirect or any broker. No $10,000 minimums, no account hoops; CD minimums vary by bank and offer.
When is T-bill interest taxed, compared to CD interest?
T-bill interest is taxed in the year the bill matures or is sold — a 52-week bill bought now is next year’s tax event. CD interest is taxable each year as it is credited, reported on Form 1099-INT at $10 or more of interest. The calculator compares one year of each, so the timing does not change the verdict — but it changes which tax return the interest lands on.
What is the early-withdrawal penalty on a CD?
Typically 3–6 months of interest on a 1-year CD — $119–$238 at 4.75% on $10,000. T-bills sold early on the secondary market carry no penalty, though the sale price moves with rates.
Are CDs FDIC-insured?
Yes — up to $250,000 per depositor per bank, including accrued interest. T-bills are direct U.S. Treasury obligations, which is the benchmark every other yield is measured against.
Should I ladder T-bills instead of buying a CD?
If you value liquidity, yes: roll 4-week or 13-week bills so money frees up monthly. If you value rate certainty and live in a no-tax state, a 1-year CD locks the rate and wins the after-tax math. Run each plan through the calculator with your state rate.
Bright Side Kit. "T-Bills vs CDs: After-Tax Guide 2026 | Bright Side Kit." https://brightoolbox.com/guides/t-bills-vs-cds/ Accessed October 23, 2026.Data sources- U.S. Treasury auction results, September 29, 2026 — 52-week bill 4.616% investment rate.
- U.S. Treasury auction results, October 5, 2026 — 26-week bill 4.314% investment rate.
- Bankrate, October 11, 2026 — top nationally-available 1-year CD 4.75% APY; top 6-month CD 4.40% APY.
- 31 U.S.C. §3124 — interest on U.S. obligations exempt from state and local income tax.
- FDIC, October 2026 — national average 12-month CD rate 1.76%.