Treasury Bills vs. CDs: What’s the Difference?

When deciding between Treasury bills (T-bills) and certificates of deposit (CDs), understanding the key differences in risk, returns, taxes and maturity terms is essential. In today’s interest rate environment, both cash-equivalent investments offer attractive, low-risk yields, but they cater to very different financial goals.

The US government backs T-bills, offering short-term, virtually risk-free debt obligations exempt from state and local taxes. In contrast, CDs provide a guaranteed, fixed interest rate with longer term options and the protection of Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) coverage.

When weighing treasuries vs. CDs, understanding how each fits into your liquidity needs and tax situation will help you choose the best vehicle for your cash.

T-Bills vs. CDs: Key differences

	T-Bills	CDs
Issuer	Issued by the US Department of the Treasury.	Issued by commercial banks and credit unions.
Risk level	Considered virtually risk-free; backed by the full faith and credit of the US government.	Low-risk; insured up to $250,000 per depositor, per institution, per ownership category by the FDIC (banks) or NCUA (credit unions).
Rate structure	Sold at a discount and mature at face (par) value; return is the difference between purchase price and face value.	Fixed or variable annual percentage yield (APY); fixed-rate CDs are most common.
Maturity terms	Short-term maturities: 4, 8, 13, 17, 26 and 52 weeks (plus short Cash Management Bills).	Terms typically range from 1 month to 5 years (some institutions offer up to 10 years).
Secondary market & liquidity	Highly liquid; can be sold on the secondary market prior to maturity without an early withdrawal penalty.	Cannot be traded (standard retail CDs); withdrawing funds before maturity incurs an early withdrawal penalty.
Principal protection	Principal is fully protected by the US government with no upper dollar limit.	Principal is fully protected up to $250,000 per depositor, assuming no penalty from early withdrawal.
Insurance	Direct government backing; not insured by the FDIC or NCUA.	Insured up to $250,000 per depositor by FDIC (banks) or NCUA (credit unions).
Interest payments	No periodic coupon payments; interest is paid as a lump sum at maturity (the difference between purchase price and face value).	Interest may compound and pay out monthly, semi-annually, annually or at maturity.
Taxation	Interest earned is subject to federal income tax, but completely exempt from state and local taxes.	Interest earned is subject to federal, state and local income taxes.

What is a Treasury Bill?

Commonly known as T-bills, Treasury Bills are short-term debt instruments the US government issues to finance public expenditures for terms ranging from four to 52 weeks.⁽¹⁾ When you purchase a T-bill, you are lending your money to the federal government.

T-bills are zero-coupon securities sold at a discount to their face value in $100 increments.⁽¹⁾ For example, you might pay $960 for a $1,000 T-bill. When the bill reaches maturity, the government repays the full $1,000 face value. The difference represents your interest earned.

Because T-bills are backed by the full faith and credit of the US government, they carry virtually no default risk, making them especially appealing to conservative investors and those seeking state-tax-sheltered yields.

Our top T-bill pick

9 Excellent

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Public Treasury Account

Get 3.16%* yield on your cash. Purchase Treasury Bills in seconds and access your money at any time.

• $0 commission for U.S. listed stocks and ETF trades placed during regular US market hours, and competitive trade fees for alternative assets.
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• A community-driven experience with real-time insights and advanced data at your fingertips.

Partner terms and conditions

Yield is an annualized 26-week T-bill rate (as of 9/11/24) when held to maturity. Rate is gross of fees, see fee schedule. T-bills are purchased in increments of $100 par value at a discount; any remaining balance after purchase is held in cash. For other important disclosures, see risks.

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Pros

• Zero default risk, backed by the US government. Investors can count on receiving the full face value of the T-bill at maturity, making them one of the safest capital preservation options in the world.
• Low minimum investment requirement of $100. T-bills can be purchased in $100 increments through TreasuryDirect or brokerage platforms, making them accessible to investors at any budget.
• Exempt from state and local income taxes. Earnings on T-bills are free from state and municipal taxes, which substantially increases the after-tax yield for residents in high-tax states like California or New York.
• High liquidity on the secondary market. If you need cash before maturity, you can sell your T-bills on the open market through a brokerage without incurring bank early-withdrawal penalties.

Cons

• No periodic income payments. T-bills do not pay regular monthly or semi-annual coupons. The entire gain is realized only when the bill matures or when sold, which may not suit investors needing ongoing cash flow.
• Short maturities limit long-term rate locks. T-bills mature in one year or less. If interest rates fall in the future, you face reinvestment risk once your bill matures.
• Potential price fluctuation if sold early. While your principal is safe if held to maturity, selling on the secondary market before maturity exposes you to market price fluctuations based on prevailing interest rates.

What is a CD?

A certificate of deposit (CD) is a time-deposit savings account that allows you to deposit a lump sum for a predetermined term, typically ranging from one month to five or 10 years.⁽²⁾

In return for committing your funds for the agreed period, the issuing bank or credit union pays you a fixed annual percentage yield (APY), which is generally higher than traditional savings accounts. When the CD reaches maturity, you receive your initial deposit plus all accumulated interest.

CDs are considered one of the safest savings vehicles because they are insured up to $250,000 per depositor, per institution, per account ownership category by the FDIC (for banks) or NCUA (for credit unions).⁽²⁾ However, accessing your deposit before the maturity date usually incurs an early withdrawal penalty.

Our top CD pick

9.4 Excellent

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Patriot Bank 3-month CDs through Raisin

Patriot offers a strong 3.60% APY on its 3-month CD through Raisin. Pay no fees and just a $1 minimum deposit.

• 3.60% APY.
• Interest compounds daily.
• $0 monthly fee.

Pros

• Guaranteed returns with a fixed rate. Fixed-rate CDs lock in your APY for the duration of the term, shielding your returns against falling interest rates.
• FDIC or NCUA insurance protection. Your funds are protected up to $250,000 per depositor per institution, ensuring zero risk of loss even if the bank or credit union fails.
• Flexible term lengths up to 5 or 10 years. Unlike T-bills, which cap out at 52 weeks, CDs allow you to lock in guaranteed returns for multi-year horizons.
• Compounding interest options. Many CDs compound interest daily or monthly, boosting overall yield compared to simple interest instruments.

Cons

• Early withdrawal penalties. Cashing out before maturity typically costs you several months of interest and can sometimes eat into your initial principal.
• Subject to state and local taxes. Unlike T-bills, interest earned on CDs is fully taxable at the federal, state and local levels.
• Inflation risk on long-term commitments. Locking money into a multi-year CD can erode your purchasing power if inflation outpaces your fixed APY.

T-Bills or CDs: Which is right for you?

When comparing treasury bills vs. CDs, the right choice depends on your tax bracket, liquidity requirements and investment horizon.

Choose T-Bills if:

• You live in a high-tax state: Exemption from state and local taxes means your effective after-tax return could easily beat a CD with a comparable gross APY.
• You value liquidity: T-bills can be sold on the secondary market at market value before maturity, avoiding the strict early withdrawal penalties associated with CDs.
• You are investing more than $250,000: Because T-bills are backed directly by the US government, there is no $250,000 insurance cap per account.
• You want short-term cash management: T-bills are optimal for parking cash for 1, 3, 6 or 12 months.

Choose CDs if:

• You want to lock in rates for multiple years: If you anticipate interest rate cuts, a 2-, 3- or 5-year CD lets you lock in today’s rates long after T-bills mature.
• You live in a state with no income tax: In states with zero income tax (such as Texas, Florida or Washington), the state tax advantage of T-bills does not apply.
• You prefer banking convenience: CDs can be easily opened through your existing bank or credit union without opening a separate TreasuryDirect or brokerage account.
• You want predictable compound interest: CD accounts can automatically compound interest and deposit proceeds directly into your checking or savings account.

If you’re ready to explore investment options, check out the best brokerage accounts to find the right platform for your financial goals.

Frequently asked questions

• Can a minor own T-bills?

  Minors cannot directly open an individual TreasuryDirect account, but a parent, legal guardian or primary caregiver can establish a linked custodial account on the minor's behalf. The custodian can purchase T-bills for the minor within that account. Once the minor turns 18, they can establish their own TreasuryDirect account and transfer the securities.⁽³⁾

• Do you pay taxes on T-bills and CDs?

  Yes, but the tax treatment differs. Interest earned on CDs is taxed as ordinary income at the federal, state and local levels.⁽⁴⁾ In contrast, earnings from Treasury bills are subject to federal income tax but are 100% exempt from all state and local income taxes.⁽¹⁾

• Are T-bills safer than CDs?

  Both are considered virtually risk-free. T-bills are backed by the full faith and credit of the US government with no dollar limit. CDs are insured up to $250,000 per depositor, per institution, per account ownership category by the FDIC or NCUA. For cash amounts exceeding $250,000, T-bills provide safety without needing to split funds across multiple banking institutions.

• Can you cash out a T-bill or CD early?

  Yes, but the mechanisms differ. Standard bank CDs cannot be traded; you must request an early redemption from the issuing bank or credit union, which typically charges an early withdrawal penalty. T-bills cannot be redeemed with the government before maturity, but they can be sold anytime on the liquid secondary market through a brokerage account at prevailing market prices.