After-tax interest advantageT-bill +$78
Nets 3.31% vs 3.15% after tax over 12 months (CD needs 4.72% APY to tie). T-bill pays moreAt these inputs, the 4.35% Treasury bill earns about $78 more after tax than the 4.50% bank CD or HYSA over 12 months ($1,653 vs $1,575). Because US Treasury interest is exempt from the 6.00% state and local tax, a bank CD or HYSA would need to pay 4.72% APY to match it.
US Treasury bill Higher after tax
Earns $2,175 before tax over 12 months at 4.35% APY.
Pays $522 in federal tax (24.00%) and $0 in state or local tax under 31 U.S.C. 3124, leaving $1,653 after tax (3.31% after-tax APY).
Skipping the 6.00% state and local tax saves $131 on the T-bill interest.
Bank CD or HYSA Lower after tax
Earns $2,250 before tax over 12 months at 4.50% APY.
Pays $540 in federal tax plus $135 in state and local tax (30.00% combined), leaving $1,575 after tax (3.15% after-tax APY).
To tie the 4.35% T-bill after all taxes, a bank CD or HYSA must pay at least 4.72% APY (37 bps higher than the T-bill).
At your 6.00% combined state and local tax rate, a taxable bank CD or HYSA loses 30.00% of its interest to taxes while a US Treasury bill loses only 24.00%.
Treasury bill (after tax)$1,653
3.31% after-tax APY ($2,175 gross) Bank CD / HYSA (after tax)$1,575
3.15% after-tax APY ($2,250 gross) Break-even bank CD APY4.72%
Bank APY needed to match 4.35% T-bill State and local tax saved$131
Saved by skipping 6.00% state/local tax Where the interest and taxes go
Side-by-side breakdown of gross interest, federal and state/local tax, and net return over your holding period.
Side-by-side breakdown of interest and taxes for a US Treasury bill and a bank CD or HYSA| Line | US Treasury bill | Bank CD or HYSA |
|---|
After-tax interest across holding periods
Compares cumulative after-tax interest earned from 1 month through 36 months if both annualized yields stay at the rates you entered.
Treasury bill (after tax)Bank CD / HYSA (after tax)
Gross and after-tax interest for a US Treasury bill and a bank CD or HYSA across holding periods| Holding period | T-bill gross | T-bill after tax | CD gross | CD after tax | T-bill advantage |
|---|
What changes the answer most
These two assumptions move the after-tax interest gap the most when varied one at a time.
- If the Treasury bill yield were 0.5 points higher, it would shift the after-tax advantage toward the T-bill by about $190; 0.5 points lower, it would shift the after-tax advantage toward the bank CD by about $190.
- If the bank CD or HYSA APY were 0.5 points higher, it would shift the after-tax advantage toward the bank CD by about $175; 0.5 points lower, it would shift the after-tax advantage toward the T-bill by about $175.
How this estimates
After-tax yield and tax-equivalent CD rate. Under 31 U.S.C. Section 3124, interest on direct obligations of the United States is exempt from state, county, and municipal income taxes. Your Treasury bill interest owes only your federal marginal rate plus any 3.8% Net Investment Income Tax (NIIT). Bank CD and HYSA interest owes federal, NIIT, state, and local income taxes. The tax-equivalent CD APY needed to match a Treasury bill is tbillYieldPct * (1 - tFed) / (1 - tFed - tStateLocal).
Compounding over your term. For a holding period of termMonths, gross interest is depositAmount * ((1 + APY)^(termMonths / 12) - 1), so a 12-month holding period pays exact annual percentage yield (`APY`) and multi-year or sub-year terms scale on an annualized APY basis.
What this leaves out
Early-withdrawal penalties on bank CDs (typically 3 to 6 months of interest if redeemed before maturity), secondary-market bid-ask spreads or interest-rate price swings if you sell a Treasury bill before maturity in a brokerage account, state tax deductibility for taxpayers who itemize deductions below the federal SALT cap, and money-market funds that hold only partial US Treasury obligations (some states, including New York, California, and Connecticut, require a mutual fund to hold at least 50% qualifying federal obligations at each quarter-end to pass through state tax exemption).
Sources and rate benchmarks
Rules on Treasury bill auctions and terms come from TreasuryDirect. National bank deposit rate benchmarks come from the FDIC National Rates and Rate Caps page (where the national savings rate average is 0.37% and the rate cap is 4.38%). State and city income tax brackets for New York and New York City are published by the New York State Department of Taxation and Finance.
An estimate from the numbers you typed. Not tax, legal or investment advice. Confirm your federal, state, and local tax rules with the IRS, your state tax agency, or a tax preparer.
Benchmark sources and dates
Starting assumptions are example benchmarks, not binding quotes. Change any input to match your own bills or offers.
| Assumption / Input | Starting value | Source | Checked |
|---|
| State and local tax exemption on US Treasury obligations | Exempt from all state, county, and municipal income taxes; subject to federal income tax. | 31 U.S.C. 3124, Exemption from taxation and TreasuryDirect: Treasury Bills | 2026-10-18 |
| Bank CD or HYSA APY | 4.50% APY default (competitive online CD or HYSA). Typical, edit this. | FDIC National Rates and Rate Caps | 2026-10-18 |
| US Treasury bill annualized yield (APY) | 4.35% investment yield. Typical, edit this. | TreasuryDirect: Treasury Bills | 2026-10-18 |
| Cash invested and holding term | $50,000 for 12 months. Typical, edit this. | TreasuryDirect: Treasury Bills | 2026-10-18 |
| Federal marginal income tax rate | 24% default. Typical, edit this. | IRS Federal Income Tax Rates and Brackets | 2026-10-18 |
| State and local marginal income tax rates | 6.0% state default (New York typical), 0% local default. Typical, edit this. | New York State Department of Taxation and Finance: Personal Income Tax Tables | 2026-10-18 |
| Net Investment Income Tax (NIIT) | 0% default (3.8% when applicable). | IRS Questions and Answers on the Net Investment Income Tax | 2026-10-18 |