T-Bills vs High-Yield Savings Guide 2026 | Bright Side Kit

The 60-second rule

Compare after-tax yields, not headline rates — and remember T-bill interest skips state tax. That is the whole rule, and the defaults are why: a 4.00% APY savings account and 4.10% T-bills, 22% federal bracket, 5% state tax, $10,000. The HYSA keeps 2.920% ($292.00/yr); the T-bill keeps 3.198% ($319.80/yr). T-bills win by $27.80. Run your own numbers in the T-bills vs high-yield savings calculator — the state-tax field is the one that flips the verdict. Everything below is the evidence for that rule.

The $319.80 vs $292.00, line by line

The setup: $10,000 in cash, a 4.00% APY high-yield savings account (about what the best no-strings online accounts paid in October 2026), 4.10% T-bills (near the 13-week auction’s 4.185% investment rate that month), a 22% federal marginal bracket, and 5% state tax.

Line 1 — the HYSA’s real yield. Savings interest is taxed twice: federally and by your state. 4.00% × (1 − 0.22 − 0.05) = 4.00% × 0.73 = 2.920% after tax. On $10,000: $292.00 a year. Notice the structure: every point of state tax is a full point off the HYSA’s yield — the state takes its bite on top of the federal one.

Line 2 — the T-bill’s real yield. Treasury interest is exempt from state and local tax by federal law (31 U.S.C. §3124), so only the federal bracket applies: 4.10% × (1 − 0.22) = 4.10% × 0.78 = 3.198% after tax. On $10,000: $319.80 a year. The 0.78 multiplier holds in every state — the exemption is federal, not a state perk.

Line 3 — the gap. 3.198% − 2.920% = 0.278 percentage points; $319.80 − $292.00 = $27.80 a year on $10,000. Scale it: $278 on $100,000. This is not a rounding error — it is the state tax you did not have to pay.

Line 4 — the shortcut. The T-bill’s tax-equivalent yield is 4.10% ÷ (1 − 0.05) = 4.32% — a HYSA would need to advertise 4.32% APY to tie this T-bill after taxes. One division replaces the whole comparison.

Why T-bills skip state tax (and why it matters more than the rate)

31 U.S.C. §3124 says no state or locality may tax interest on obligations of the United States. Treasury bills are such obligations; your savings account is not. So in the comparison, the state term appears on only one side of the equation — and that asymmetry is worth real money. At 22% federal and 5% state, the exemption hands the T-bill 0.205 percentage points of free yield (4.10% × 0.05): before anyone compares rates, the T-bill starts the race 20.5 basis points ahead.

The exemption scales with your state rate, which is why location is the most decisive input. California’s 9.3% turns the exemption into a 0.381-point head start; New York’s 6.85% into 0.281 points; Texas’s 0% into nothing at all. Two people can look at the same 4.00% vs 4.10% and get opposite verdicts — both correct, because they live in different states. This is the number-one thing the “just compare the rates” advice gets wrong.

All three branches

Branch A — the HYSA wins: 4.50% HYSA vs 3.80% T-bill, 22% federal, 0% state. With no state tax, the exemption buys nothing and the headline rate rules: 4.50% × 0.78 = 3.510% ($351.00) against 3.80% × 0.78 = 2.964% ($296.40) — HYSA by 0.546 pp ($54.60). A big enough rate advantage beats the tax trick every time. (October 2026 reality check: top no-strings HYSAs ran about 4.00–4.20%, so a 4.50% HYSA is the optimistic end — but promotional and conditional accounts did reach it.)

Branch B — the high-tax flip: 4.00% vs 4.10%, 22% federal, 9.3% California. The HYSA collapses to 4.00% × (1 − 0.22 − 0.093) = 2.748% ($274.80) while the T-bill holds 3.198% ($319.80) — T-bills by 0.450 pp ($45.00). Same rates as the main example, nearly double the gap: the state did the winning.

Branch C — the tie: 4.00% vs 4.00%, 22% federal, 0% state. Both keep 4.00% × 0.78 = 3.120% ($312.00) — a dead heat. No state tax, no rate gap, no verdict. When the calculator says tie, decide on liquidity and convenience, not math.

When each one wins

The HYSA wins when you live in a no-income-tax state (Texas, Florida, and friends — the exemption is worthless there), when the HYSA’s rate beats the T-bill’s tax-equivalent yield (above 4.32% at the defaults), or — most importantly — when you need the money instantly and without penalty. Emergency funds, rent money, the cash you might need Friday: the HYSA wins by forfeit because T-bills cannot match instant access.

T-bills win when you pay meaningful state tax (the higher the rate, the bigger the edge), when your cash pile exceeds the $250,000 FDIC limit per bank (T-bills carry unlimited Treasury backing — no splitting across banks), and when you know the date you need the money (a 13-, 26-, or 52-week bill maturing right on schedule). They also win the rate-lock game: a bill’s yield is fixed at auction while the HYSA’s can fall tomorrow.

The three mistakes

Mistake 1 — comparing headline rates. 4.00% vs 4.10% looks like a 0.10-point race; after tax it is a 0.278-point race, and in California a 0.450-point race. The headline comparison understates the real gap by 3–4×. Always run the after-tax math — it takes thirty seconds in the calculator.

Mistake 2 — forgetting when the tax hits. HYSA interest is taxed in the year it is credited; T-bill interest is generally taxed in the year the bill matures. Buy a 52-week bill in October 2026 and the interest lands on your 2027 return — a free one-year deferral that the headline yield does not show. Short bills maturing in December do the opposite.

Mistake 3 — parking the emergency fund in T-bills. The math says T-bills; the emergency says HYSA. Bills bought at TreasuryDirect must be held to maturity or transferred out; brokerage bills can be sold early but at market price — a small loss is possible. The $27.80-a-year edge on $10,000 is not worth selling at a loss during a crisis. Keep the emergency fund liquid; put the rest of the cash where the math wins.

How to actually buy T-bills

Two doors, same auction. TreasuryDirect.gov: buy in $100 increments, no fees, hold to maturity — the purist route, with the government’s famously dated website. A brokerage (Fidelity, Schwab, Vanguard): buy new bills at auction with no fee, sell early on the secondary market if plans change, and turn on auto-roll so each maturing bill buys the next one — the set-and-forget route most rollers choose. Minimums are tiny either way; the real decision is whether you want your hands on the wheel (TreasuryDirect) or cruise control (auto-roll). Either way, the state-tax exemption applies identically.

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