T-bills vs. CDs: Which One Should You Choose Right Now?

In times of economic uncertainty, many people look to fixed-income investing strategies such as bond ladders or CD ladders. These can provide cash flow that may help cushion against financial setbacks, such as a job loss or a stock market downturn.

But which one of those fixed-income investments is better: bonds or CDs? That’s a subjective question.

CDs might be more familiar, but short-term Treasurys, such as T-bills (Treasury securities with a maturity of 1 year or less), are paying comparable yields right now — sometimes even higher yields. Here’s a breakdown of T-bills vs. CDs in terms of yield, tax treatment, flexibility and ease of use.

One-year T-bills have higher yields than some one-year CDs

The yield on the one-year Treasury bill has spent much of 2025 above 4.1%. That’s more than twice as high as the national average rate for one-year CDs.

There are a few one-year CDs that pay more than the one-year T-bill (you can compare all CD rates in NerdWallet’s CD roundup). Still, it’s worth noting that CD interest is subject to both federal and state tax, where applicable. T-bills, on the other hand, aren’t subject to the latter.

T-bill interest is exempt from state and local taxes

All interest from Treasury securities, including T-bills, is state-tax-exempt. If you live in a state with high income taxes, such as New York, that effectively bumps up the tax-equivalent yield on T-bills by about 0.25 percentage points.

If you’re putting $5,000 into a CD or T-bill, this only works out to a few dollars’ difference.

But it still means T-bills may have a higher after-tax yield than most of the highest-yielding CDs for you. Plus, it can save you the hassle of reporting a little bit of extra interest income to the state at tax time.

Early withdrawals: CD penalties vs. T-bill sales

One thing that T-bills and CDs have in common: Withdrawing your money from either vehicle before it reaches maturity may have a cost.

For CDs, this is an early withdrawal penalty. This typically means forfeiting some number of months or years of interest, although some CD early withdrawal penalties can also eat into the principal, leaving you with less total money than you put in.

Regardless, the early withdrawal penalties for a CD should be clearly stated when you open a CD through a bank or credit union.

The cost of pulling money out of a T-bill early is a bit more complicated. T-bills are tradable securities; they don’t just have yields, they also have prices. If you pull your money out of a T-bill early (in other words, if you sell a T-bill before maturity), the market price of the T-bill may be higher or lower than what you paid for it.

If it’s higher, you’ll earn a profit, but that profit will be subject to federal short-term capital gains tax come tax time.

If it’s lower, you won’t get back all the money you put in (although you may be able to deduct the difference from your taxes as a short-term capital loss).

When interest rates go down, due to Federal Reserve action or market fluctuations, that tends to increase the price of Treasury securities.

When rates go up, that tends to push Treasury prices down. This effect, known as interest rate risk, moves the prices of longer-dated Treasurys more than short-term bills, although it affects both.

» See the best CD rates right now

Ease-of-use: How do you invest in T-bills?

So far, we’ve talked about a lot of advantages that T-bills have over CDs, especially during this time of elevated Treasury yields.

But CDs do have at least one important advantage, especially for investing beginners: They’re easier to use and more widely-available. If you have any sort of account with a bank or credit union, chances are it offers CDs.

Investing in T-bills, on the other hand, may have more of a learning curve; it may require opening a new account of some kind.

You’ll either need a brokerage account that offers bonds, or a Treasury account (a new type of savings-account-like product that automatically invests in T-bills for you. Of the brokers NerdWallet reviews, only Public offers a Treasury account. Also, NerdWallet offers a Treasury account through a partnership with Atomic.)

CDs have simple workings: you can open them through your bank (sometimes even through your banking app). They pay a fixed amount of interest, typically all at once at the end of the CD term.

They also have easy-to-follow rules; they’re designed to be left alone for their term. It’s hard to accidentally make an early withdrawal from a CD without running into some kind of warning about the penalties you’ll incur.

» MORE: Best CD rates

Neither the author nor editor owned positions in the aforementioned investments at the time of publication.