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If you’re looking for a safe investment, certificates of deposit (CDs) and Treasury bills are popular choices. Most banks and credit unions offer CDs. These allow you to 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. It works similarly to a CD because you buy it with a fixed interest rate and a set period of time. Duration ranges from 4 to 52 weeks. To help you decide which is the better investment, here are recent rates and other key differences between the top CD and Treasury bill auctions.
Comparison of CD and T-Bill rates
The table below provides a side-by-side comparison of recent CD and T-bill rates. The CD rate was the best I could find after reviewing dozens of high-yield CD options. T-Bill rates are from auctions within the past two weeks at the time of writing (issued from January 1, 2024 to February 8, 2024).
|
semester |
CD rate |
Government bill rate |
|---|---|---|
|
1 month (CD)/4 weeks (T-bill) |
5.40% |
5.390% |
|
3 months (CD)/13 weeks (T-bill) |
5.35% |
5.394% |
|
6 months |
5.28% |
5.263% |
|
1 year |
5.35% |
4.814% |
Data sources: Raisin, First Internet Bank, and TreasuryDirect.
As you can see, there is currently not much difference between short-term CD rates and T-Bill rates. However, if you need a one-year period, you’re better off using a CD.
Comparison of CD rate and T note rate
The maximum term for a T-bill is 52 weeks, but there are other types of Treasury securities that have longer terms. Treasury bills have a term of 2 to 10 years. The term of government bonds is 20 or 30 years. The term of a CD is typically capped at 10 years, so if you want to invest in bonds for a longer term, you should choose government bonds.
Comparing the current CD rate and T-note rate is as follows. T note rates are for notes issued from January 16, 2024 to January 31, 2024.
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|
semester |
CD rate |
T note rate |
|---|---|---|
|
2 years |
5.00% |
4.365% |
|
3 years |
5.05% |
4.105% |
|
5 years |
5.10% |
4.055% |
|
10 years |
4.00% |
4.024% |
Data sources: Vanguard, Apple Federation Credit Union, and TreasuryDirect.
If you’re looking for a two- to five-year term, CDs can give you more income. And that can make a big difference.
Differences between investing in CDs and T-Bills
T-Bills have important advantages over CDs. It is exempt from state income tax. The same applies to Treasury bills and Treasury bonds.
If you live in a state with an income tax and the CD and T-bill tax rates are the same, it makes sense to choose the T-bill. Because of the tax savings, you may end up paying more with a T-bill than with a CD.
Another advantage of Treasury bills is their liquidity. It can be bought and sold on the secondary market. You cannot do this with a CD purchased from a bank. To get your money back, you’ll have to tear the CD and pay the early withdrawal penalty. There are brokered CDs issued by securities companies that can be bought and sold on the secondary market. If you want a more flexible CD option, these might be worth considering as well.
The choice between CDs and Treasuries depends on your desired term. For terms of 1 to 6 months, as well as 10 years, U.S. Treasuries are better because the interest rates are close enough. For terms of one to five years, CDs currently pay more, and the difference is large enough to give CDs an edge.
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