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
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

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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.
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
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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.

Why are CDs not a good investment? ›

CDs may not be worth it when interest rates are low. In these environments, conservative investors are often better off in other fixed-income securities, like municipal or corporate bonds, Conners says. Rosenstrock also recommends people consider the tax advantages of investing in fixed-income securities over CDs.

Why are my CDs losing money? ›

All investments carry some degree of risk, but CDs are as low-risk as they come. That said, inflation, early withdrawal penalties and interest rate fluctuations can all eat into your CD's value.

What is the biggest negative of investing your money in a CD? ›

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

What is a better investment than Treasury bills? ›

Compared with Treasury notes and bills, Treasury bonds usually pay the highest interest rates because investors want more money to put aside for the longer term. For the same reason, their prices, when issued, go up and down more than the others.

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.
Mar 19, 2024

Are money 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 safe if bank collapses? ›

The FDIC Covers CDs in the Event of Bank Failure

But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure. CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.

Are CDs safe if government defaults? ›

In most cases yes, up to a point. CDs are typically insured up to the FDIC limit, though it is possible to buy jumbo CDs above that level. But you could also invest in a US Treasury money market fund, and Treasuries are backed by the full faith and credit of the US government without limits.

How safe are CDs right now? ›

Are CDs safe to invest in? Yes, CD investments up to $250,000 are safe if they are held with a bank insured by FDIC or a credit union insured by NCUA. In today's high interest rate environment, buying CDs is a great way to earn high interest while keeping your principal secure.

Should I buy a CD now or wait? ›

The decision to open a CD now or wait depends on many factors, including interest rates, when you'll need to access the funds and the state of your emergency fund. In general, when rates are high — as they are now — opening a CD allows you to maximize your earnings even if rates go down in the future.

Do you pay taxes on CDs? ›

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

What happens to my CD if the stock market crashes? ›

Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates.

Should I buy a CD or a Treasury bill? ›

Currently, Treasuries maturing in less than a year yield about the same as a CD. Therefore, all things considered, it likely makes more sense to choose Treasuries over CDs, depending on your situation, because of the tax benefits and liquidity when considering very short-term maturities.

Why not to buy Treasury bills? ›

Taxes: Treasury bills are exempt from state and local taxes but still subject to federal income taxes. That makes them less attractive holdings for taxable accounts. Investors in higher tax brackets might want to consider short-term municipal securities instead.

Why would anyone bother investing in Treasury bills? ›

Treasury securities are considered the safest and most liquid investment. This makes Treasuries the perfect collateral for borrowing money.

What are the negatives of a CD? ›

Cons of Using a Certificate of Deposit for Savings
  • Accessibility. With a savings account or money market account, you're allowed to make a certain number of withdrawals of cash or transfer funds to a linked checking account. ...
  • Early Withdrawal Penalties. ...
  • Interest Rate Risk. ...
  • Inflation Risk. ...
  • Lower Returns.
Mar 21, 2024

Is it worth putting money in a CD right now? ›

If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.

Can I lose money on a CD? ›

Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.

How much does a $10,000 CD make in a year? ›

Earnings on a $10,000 CD Over Different Terms
Term LengthAverage APYInterest earned on $10,000 at maturity
1 year1.81%$181
2 years1.53%$308.34
3 years1.38%$419.74
4 years1.29%$526.07
1 more row
Mar 20, 2024

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