Treasury Bills vs. CDs

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Contributor, Benzinga
November 30, 2023

If you're looking for a secure short-term investment, Treasury bills (T-bills) and certificates of deposit (CDs) emerge as dependable choices. They both safeguard your funds and yield interest, yet they differ in many ways. This Treasury bills vs. CD comparison article dissects the mechanics, interest rates, accessibility, maturity timelines and tax implications, empowering you to choose the instrument that best aligns with your financial objectives.

Table of Contents

What Are Treasury Bills (T-Bills)?

Treasury bills are short-term debts issued by the U.S. government, typically maturing within four weeks to a year and sold at a discount from their face value. For instance, purchasing a $1,000 T-bill at $990 means you will receive $1,000 upon maturity, earning $10 in interest. This difference between purchase and face value determines the T-bill's yield or interest rate. 

Known for safety, liquidity and low risk, T-bills rank among the world's safest investments, backed by the U.S. government's full faith and credit. With almost negligible default risk and minimal exposure to inflation because of their short maturity, they are a secure choice. 

T-bills offer high liquidity, allowing easy buying and selling in secondary markets or via brokers or online platforms like Redeeming them before maturity through may yield less than their face value. Their interest rates, lower than other fixed-income investments, fluctuate based on market conditions, future interest rate expectations, maturity and market demand and supply for T-bills.


  • Fixed return: T-bills ensure a fixed return of principal and interest unaffected by market shifts or economic conditions.
  • Tax exemption: They're exempt from state and local income taxes, reducing your tax load and boosting your after-tax gains.
  • Flexible short-term maturities: With maturities spanning four weeks to one year, T-bills provide flexible options aligning with short-term financial goals and needs.


  • Inflation risk: Low T-bill interest rates might not match inflation or the potential gains from other investments.
  • T-bills have limited availability because they’re sold in restricted quantities and specific Treasury dates. Obtaining desired amounts or maturities may be challenging or involve premiums in secondary markets.
  • There is a minimum purchase amount of $100 and higher amounts set at $100 increments, potentially too high for some investors.
  • Reinvestment risk: Once your T-bills mature, you will have to reinvest the face value you received back with no guarantees of the same yield.

What Are Certificates of Deposit (CDs)?

Certificates of deposit (CDs) are savings options from banks or credit unions. They last a few months to several years and pay a set interest rate, often better than regular savings accounts. Say you deposit $1,000 in a one-year CD at 5% interest. You'd get $1,050 at the end, earning $50 in interest. The bank sets the interest rate or annual percentage yield (APY), depending on the term and market.

CDs are safe with Federal Deposit Insurance Corp. (FDIC) insurance covering up to $250,000 per depositor, institution and account type. The financial institution keeps the interest rate fixed for the term, so you always know what you'll earn because it’s unaffected by market changes. Plus, CDs usually offer higher interest than T-bills or regular savings accounts, rewarding longer commitments with higher rates.


  • FDIC-insured: You are protected from the risk of bankruptcy of the issuing bank by FDIC insurance on up to $250,000 per account type and institution.
  • Fixed return: CDs provide a steady, predictable return on both principal and interest, aiding in budgeting and short-term financial goals.
  • Diverse expiration dates: They offer diverse maturity options spanning months to years, accommodating different time frames and risk preferences. Laddering CDs — investing in multiple CDs with varied maturities — allows for income streams and capitalizing on interest rate changes.
  • Low minimums: With low minimum deposit requirements, CDs are accessible to a broader range of investors. Minimum deposits vary by institution but can be as low as $500 or even $100.


  • Early withdrawal penalties: CDs lack liquidity, imposing penalties for early withdrawal, which could mean losing a portion or all of your earned interest or even some of your principal.
  • Taxation: They are subject to federal, state and local income taxes, potentially reducing after-tax returns and purchasing power. Investing in an individual retirement account (IRA) CD allows potential tax deferral, but withdrawals are taxable.
  • Availability: Availability of CDs is limited to banks and credit unions with varying terms. Finding the ideal CD rate or maturity might require shopping around and comparing different offers.

Comparison of Treasury Bills and CDs

Both T-bills and CDs stand out as viable short-term options for those eyeing interest income and capital preservation. Before deciding, weigh these crucial factors:


T-bills offer higher liquidity than CDs. You can sell T-bills in the secondary market or redeem them through before maturity. The amount received may be less than face value because of market conditions and fluctuations in supply and demand.

Conversely, CDs have lower liquidity. You're generally bound until maturity or face penalties for early withdrawal. But when it matures you’ll receive more than the initial deposit because of accrued interest.


T-bills come with lower risk and lower rewards compared to CDs. They offer minimal default and inflation risks but also yield lower interest rates, resulting in modest returns that might not match inflation or other investment opportunities.

On the other hand, CDs carry higher risks and higher rewards. They involve greater default and inflation risks but offer higher interest rates. Consequently, you can anticipate higher returns that may outperform inflation or the opportunity cost of other investment opportunities.

Maturity Options

T-bills offer shorter maturity periods (four weeks to one year), aligning well with short-term financial needs. However, this requires more frequent reinvestment and exposes you to interest rate fluctuations.

CDs offer more extended maturity periods from months to several years. While longer terms can suit your time horizon and risk tolerance, it also means locking your money away for extended periods and potentially missing out on higher interest rates elsewhere.

Tax Considerations

T-bills carry more tax advantages compared to CDs. They're exempt from state and local income taxes but not from federal income taxes, potentially easing your tax load and boosting your after-tax return. This tax perk is negligible if you live in a tax-free state such as Alaska or Florida. 

CDs face higher tax implications. They're subject to federal, state and local income taxes, reducing your after-tax return and purchasing power. But CDs held in tax-advantaged accounts like an IRA or 401(k) offer tax deferral possibilities, lowering your tax liability and potentially increasing your real return.

Choosing Your Ideal Short-Term Investment

Deciding between T-bills and CDs boils down to what matters most to you. T-bills might be your go-to for safety, easy access and tax perks. But if you prefer steady returns, predictability and higher rates, CDs could be better. Although CDs are FDIC-insured and T-bills are not, T-bills are still considered essentially risk-free because they are backed by the full faith and credit of the U.S. government.

Can't decide? Mix it up with both for a balanced approach, which will help you diversify, balance risk and access different maturity options. You can also ladder them to create income streams and manage changing interest rates.

Frequently Asked Questions 


Do you have to pay taxes on treasury bills?


Yes, you have to pay federal income taxes on the interest income from T-bills. However, you do not have to pay state and local income taxes, which can lower your tax burden and increase your after-tax return.


What is the six-month treasury bill rate?


The six-month treasury bill rate is the yield or the interest rate you can earn by investing in a T-bill that matures in six months. The rate varies depending on the market conditions and the demand and supply of T-bills. As of Nov. 21, the six-month treasury bill rate was 5.22%.


Are treasury bills safer than CDs?


T-bills and CDs are both safe investments, as they have very low default risk and offer principal protection. However, T-bills may be considered slightly safer than CDs, as they are backed by the full faith and credit of the U.S. government, while the FDIC insures CDs up to $250,000 per depositor per institution for each account ownership category. The risk of default is virtually zero for T-bills and minimal for CDs, as long as you keep your deposits within the insurance limits.

About Anna Yen

Anna Yen, CFA is an investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about investment topics ranging from traditional asset classes and derivatives to alternatives like cryptocurrency and real estate. Her work has been published on sites like Quicken and the crypto exchange Bybit.