Is T-bill interest taxed by states?

No. IRS Publication 550 says interest on Treasury bills, notes and bonds is subject to federal income tax but exempt from all state and local income taxes. CD interest is generally taxed by your state as well, which is why a bill can leave you more at a slightly lower headline rate.

Which T-bill yield should I compare with a CD?

The coupon-equivalent yield, also shown as the investment rate in auction results. The bank discount rate is calculated on face value and understates what you earn on the money you pay; on 16 October 2026 the 52-week bill showed 4.24% on a discount basis and 4.44% coupon-equivalent.

What CD rate do I need to beat a Treasury bill?

Roughly the bill yield × (1 − federal rate) ÷ (1 − federal rate − state rate). For a 4.44% bill in the 22% federal bracket that is about 4.74% with a 5% state tax and about 5.04% with 9.3%. With no state income tax, any CD paying more than the bill wins.

T-bill vs CD calculator: which pays more after tax?

A calculator beside two bars of different heights, comparing what a CD and a Treasury bill leave after tax

Enter the amount, how long you will hold it, the Treasury bill yield, the CD rate and your tax rates. The calculator shows the interest each one leaves you after federal and state tax, and the CD rate you would need just to match the bill.

Enter your numbers

Everything is calculated in your browser; no input is sent anywhere. The starting figures are rates from 16 October 2026.

Amount

Months you will hold it

T-bill yield (coupon equivalent)

CD rate (APY)

Federal tax bracket

State and local income tax

Treasury bill: $444 interest, $346 after tax. CD: $430 interest, $314 after tax. After tax, the Treasury bill leaves about $32 more. To match the bill, a CD would need about 4.74%.

Bill interest is treated as free of state and local income tax and CD interest as taxed by both. The bill uses simple interest at the coupon-equivalent yield and the CD compounds at its APY. It leaves out the deduction for state tax if you itemize, early-withdrawal penalties and changes in rates when you roll over.

Which numbers to enter

T-bill yield: use the coupon-equivalent rate (also called the investment rate) from Treasury's daily bill rates or the latest auction results, not the bank discount rate. On 16 October 2026 the 52-week bill's discount rate was 4.24% but its coupon-equivalent yield was 4.44%, and only the second compares with a CD's APY.
CD rate: the APY your bank or credit union quotes for the same term. Averages are far lower than the best offers; the FDIC's national average for a 12-month CD was 1.73% at the end of August 2026.
Tax rates: your federal marginal bracket and your combined state and local income tax rate. If you live in a state with no income tax, enter 0 and the two results come down to the headline rates.
Months: bills come in 4- to 52-week terms, so for anything over a year assume you roll the bill over at a similar yield.

How the calculator works it out

Bill interest after tax = amount × bill yield × months ÷ 12 × (1 − federal rate)
CD interest after tax = amount × ((1 + APY)^{months ÷ 12} − 1) × (1 − federal rate − state rate)
CD rate that matches the bill = bill yield × (1 − federal rate) ÷ (1 − federal rate − state rate)

With the starting figures, a 4.44% bill in the 22% federal bracket and a 5% state keeps about $346 on $10,000 for a year, against about $314 for a 4.30% CD. The CD would need roughly 4.74% to come out level. At a 9.3% state rate the matching CD rate rises to about 5.04%.

What the result leaves out

Leaving early. Closing a CD early usually costs a set number of days' interest; selling a bill before it matures gets the market price, which moves a little with rates. Bills held in TreasuryDirect have to be kept 45 days and transferred to a broker before they can be sold.
Itemized deductions. If you itemize, the state tax on CD interest is partly deductible on your federal return, which narrows the gap slightly.
Insurance limits. CDs are FDIC-insured up to $250,000 per depositor, per bank, per ownership category; bills carry no cap.

The full comparison, including brokered CDs, ladders and the UK equivalents, is in CD vs Treasury bills. To see what either earns after inflation, use the real return calculator.

FAQ

Is T-bill interest taxed by states?: No. IRS Publication 550 says interest on Treasury bills, notes and bonds is subject to federal income tax but exempt from all state and local income taxes. CD interest is generally taxed by your state as well, which is why a bill can leave you more at a slightly lower headline rate.
Which T-bill yield should I compare with a CD?: The coupon-equivalent yield, also shown as the investment rate in auction results. The bank discount rate is calculated on face value and understates what you earn on the money you pay; on 16 October 2026 the 52-week bill showed 4.24% on a discount basis and 4.44% coupon-equivalent.
What CD rate do I need to beat a Treasury bill?: Roughly the bill yield × (1 − federal rate) ÷ (1 − federal rate − state rate). For a 4.44% bill in the 22% federal bracket that is about 4.74% with a 5% state tax and about 5.04% with 9.3%. With no state income tax, any CD paying more than the bill wins.

Updated 18 October 2026. This calculator uses only the rates you enter, looks up no live rates, and is not investment, tax or legal advice. Starting figures: Treasury daily bill rates and Ally Bank CD rates for 16 October 2026.