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

FAQs

CDs vs. T-Bills: What's the Better Investment Now? ›

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.

Is it better to buy CDs or treasury bills? ›

While Treasurys boast higher rates than CDs, you can still score a generous annual percentage yield (APY) on a CD by shopping around. Typically, online banks offer higher interest rates than brick-and-mortar ones. Some of the best CDs have APYs that top 5%.

Are T-bills a good investment at this time? ›

Are Treasury bills a good investment? Ultimately, whether Treasury bills are a good fit for your portfolio depends on your risk tolerance, time horizon and financial goals. T-bills are known to be low-risk short-term investments when held to maturity since the U.S. government guarantees them.

Why is CD not a good financial investment? ›

Banks and credit unions can penalize savers who withdraw CD funds before maturity. CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.

Should I put my money in CDs 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.

Can treasury bills lose value? ›

Treasury bonds, notes, and bills have no default risk since the U.S. government guarantees them. Investors will receive the bond's face value if they hold it to maturity. However, if sold before maturity, your gain or loss depends on the difference between the initial price and what you sold the Treasury for.

What is a better investment than treasury bills? ›

U.S. savings bonds are a long-term choice and are appropriate for savers looking at a 20-year or 30-year time horizon. Treasury bills are a short-term alternative, maturing in a year or less. Treasury notes are at the midpoint, maturing in two to 10 years. U.S. Department of the Treasury.

What is the downside of T-bill? ›

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.

Why would anyone bother investing in Treasury bills? ›

A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.

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.

Are CDs worth it in 2024? ›

CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor. Whether a CD is worth it right now also depends on why you're saving money, how soon you need your funds and whether rates rise or fall in the next year or five years.

Why should you deposit $10,000 in a CD now? ›

A one-year CD with a $10,000 opening deposit that earns the Bankrate partner average yield of 4.94 percent would be worth around $10,494 when it matures in 12 months' time. This high-yielding one-year CD would earn you around $320 more in total interest than a CD earning the national average rate.

What is the best investment right now? ›

11 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Bonds.
  • Money market funds.
  • Mutual funds.
  • Index Funds.
  • Exchange-traded funds.
  • Stocks.
May 22, 2024

Is it good to buy CDs during a recession? ›

During the Great Recession and its aftermath, the stock market went through turbulent shifts, resulting in great losses for some stockholders. CDs are one option that can help protect your investment from times of turmoil by providing a stable income.

Are CDs worth it Dave Ramsey? ›

Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.

Why are CDs yielding more than Treasuries? ›

A higher rate set by the Federal Reserve means lower returns on T-bills. By contrast, CDs and high-yield savings accounts tend to give higher returns as the Federal Reserve benchmark rate increases.

What are the pros and cons of buying Treasury 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.

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.

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