CDs vs. T-Bills: What's the Better Investment Now? (2024)

KEY POINTS

  • CD and Treasury bill rates offer similar rates for terms of one to six months.
  • CDs are paying higher rates than Treasury bills and Treasury notes for terms of one to five years.
  • Treasuries are exempt from state income taxes, which is an important advantage when rates are nearly the same.

If you're looking for a safe investment, certificates of deposit (CDs) and Treasury bills are popular options. Most banks and credit unions offer CDs. These let you lock in a fixed interest rate and term, such as 5% for 12 months.

Treasury bills, also known as T-bills, are sold at auction. They work similarly to CDs, as you buy them with a fixed interest rate and a set term. Terms range from four to 52 weeks. To decide which is the better investment, here are recent rates from top CDs and T-bill auctions, as well as their other key differences.

CD rates vs. T-bill rates

The table below compares recent CD and T-bill rates side by side. The CD rates were the best I found after reviewing dozens of high-yield CD options. T-bill rates are from auctions within the last two weeks at the time of writing (issue dates ranging from Jan. 1 to Feb. 8, 2024).

TermCD rateT-bill rate
One month (CD)/Four weeks (T-bill)5.40%5.390%
Three months (CD)/13 weeks (T-bill)5.35%5.394%
Six months5.28%5.263%
One year5.35%4.814%

Data sources: Raisin, First Internet Bank, and TreasuryDirect.

As you can see, there's not much difference between shorter CD and T-bill rates right now. But if you want a 1-year term, then you're better off with a CD.

CD rates vs. T-note rates

While T-bills have a maximum term of 52 weeks, there are also other types of Treasury-issued securities with longer terms available. Treasury notes have terms of two to 10 years. Treasury bonds have terms of 20 or 30 years. CD terms typically cap out at 10 years, so if you want a fixed-income investment for longer than that, you'll need to go with Treasury bonds.

Here's how CD rates currently compare to T-note rates. The T-note rates are from notes issued between Jan. 16 and Jan. 31, 2024.

TermCD rateT-note rate
Two years5.00%4.365%
Three years5.05%4.105%
Five years5.10%4.055%
10 years4.00%4.024%

Data sources: Vanguard, Apple Federal Credit Union, and TreasuryDirect.

If you're looking for a term from two to five years, you can earn more from a CD. And it can be a sizable difference.

Differences between investing in CDs and T-bills

T-bills have a key advantage over CDs: They're exempt from state income taxes. The same is true with Treasury notes and Treasury bonds.

If you live in a state with income taxes, and rates are similar for CDs and T-bills, then it makes sense to go with a T-bill. The amount you save on taxes will likely result in a higher payout from a T-bill than a CD.

Another benefit of T-bills is their liquidity. You can buy and sell them on a secondary market. You can't do that with a CD purchased from a bank -- you'll need to break the CD and pay an early withdrawal penalty to get your money back. There are brokered CDs issued by stock brokers, and these can be bought and sold on a secondary market. These may also be worth considering if you want a more flexible CD option.

Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.

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4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
CDs vs. T-Bills: What's the Better Investment Now? (13)CDs vs. T-Bills: What's the Better Investment Now? (14)CDs vs. T-Bills: What's the Better Investment Now? (15)CDs vs. T-Bills: What's the Better Investment Now? (16)CDs vs. T-Bills: What's the Better Investment Now? (17) = Best
CDs vs. T-Bills: What's the Better Investment Now? (18)CDs vs. T-Bills: What's the Better Investment Now? (19)CDs vs. T-Bills: What's the Better Investment Now? (20)CDs vs. T-Bills: What's the Better Investment Now? (21) = Excellent
CDs vs. T-Bills: What's the Better Investment Now? (22)CDs vs. T-Bills: What's the Better Investment Now? (23)CDs vs. T-Bills: What's the Better Investment Now? (24) = Good
CDs vs. T-Bills: What's the Better Investment Now? (25)CDs vs. T-Bills: What's the Better Investment Now? (26) = Fair
CDs vs. T-Bills: What's the Better Investment Now? (27) = Poor

Rating image, 4.00 out of 5 stars.CDs vs. T-Bills: What's the Better Investment Now? (28)CDs vs. T-Bills: What's the Better Investment Now? (29)CDs vs. T-Bills: What's the Better Investment Now? (30)CDs vs. T-Bills: What's the Better Investment Now? (31)CDs vs. T-Bills: What's the Better Investment Now? (32)CDs vs. T-Bills: What's the Better Investment Now? (33)CDs vs. T-Bills: What's the Better Investment Now? (34)CDs vs. T-Bills: What's the Better Investment Now? (35)CDs vs. T-Bills: What's the Better Investment Now? (36)CDs vs. T-Bills: What's the Better Investment Now? (37)

4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
CDs vs. T-Bills: What's the Better Investment Now? (38)CDs vs. T-Bills: What's the Better Investment Now? (39)CDs vs. T-Bills: What's the Better Investment Now? (40)CDs vs. T-Bills: What's the Better Investment Now? (41)CDs vs. T-Bills: What's the Better Investment Now? (42) = Best
CDs vs. T-Bills: What's the Better Investment Now? (43)CDs vs. T-Bills: What's the Better Investment Now? (44)CDs vs. T-Bills: What's the Better Investment Now? (45)CDs vs. T-Bills: What's the Better Investment Now? (46) = Excellent
CDs vs. T-Bills: What's the Better Investment Now? (47)CDs vs. T-Bills: What's the Better Investment Now? (48)CDs vs. T-Bills: What's the Better Investment Now? (49) = Good
CDs vs. T-Bills: What's the Better Investment Now? (50)CDs vs. T-Bills: What's the Better Investment Now? (51) = Fair
CDs vs. T-Bills: What's the Better Investment Now? (52) = Poor

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CDs vs. T-Bills: What's the Better Investment Now? (2024)

FAQs

Should I invest in CDs or treasury bills? ›

Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.

Are treasury bills a good investment now? ›

While interest rates and inflation can affect Treasury bill rates, they're generally considered a lower-risk (but lower-reward) investment than other debt securities. Treasury bills are backed by the full faith and credit of the U.S. government. If held to maturity, T-bills are considered virtually risk-free.

What is the downside to buying T-bills? ›

T-bills pay a fixed rate of interest, which can provide a stable income. However, if interest rates rise, existing T-bills fall out of favor since their return is less than the market. T-bills have interest rate risk, which means there is a risk that existing bondholders might lose out on higher rates in the future.

Are CDs good to invest in right now? ›

If you're in a position to save in today's higher interest rate environment, investments like CDs could help accelerate your savings. CD rates have skyrocketed since 2022: 1-year CD rates have increased more than twelve-fold, with 3-year and 5-year CDs up nearly six-fold and five-fold, respectively.

Why buy CDs over Treasuries? ›

CDs offer a fixed rate for locking up your money for a fixed period of time, but you'll only earn the highest returns if you choose longer terms. Treasury bills are shorter term and depending on the term you choose, you could lock your money up for as little as a few days or as long as one year.

Why are Treasuries better than CDs? ›

When deciding whether to invest in a CD or Treasury, you must consider your risk tolerance, liquidity needs, and investment horizon. Treasurys are a better choice for those who need more liquidity, have a longer investment horizon, and prefer the tax advantages.

Why does Warren Buffett buy T-bills? ›

Buffett reportedly prefers T-bills to other options because he never wants to worry about whether or not Berkshire's pile of cash is safely invested. Meanwhile, yields have jumped so much in the past two years that Berkshire is actually earning a pretty penny on this cash hoard.

Are Treasury bills safer than CDs? ›

Treasury bills can be a good choice for those looking for a low-risk, fixed-rate investment that doesn't require setting money aside for as long as a CD might call for. However, you still run the risk of losing out on higher rates and returns if the market is on the upswing while your money is locked in.

How much does a $1000 T-bill cost? ›

To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.

Are CDs safe if the market crashes? ›

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

Can you get 6% on a CD? ›

You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.

Why should you put $5000 in a 6-month CD now? ›

While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.

What is a better investment than Treasury bills? ›

Treasury bonds—also called T-bonds—are long-term debt obligations that mature in terms of 20 or 30 years. They're essentially the opposite of T-bills as they're the longest-term and typically the highest-yielding among T-bills, T-bonds, and Treasury notes.

What is the current 6 month T bill rate? ›

Basic Info

6 Month Treasury Bill Rate is at 5.17%, compared to 5.18% the previous market day and 4.86% last year.

Do banks charge to buy T-bills? ›

When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment.

Do you pay taxes on treasury bills? ›

Key Takeaways

Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.

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