T-Bills vs High-Yield Savings vs CDs vs Money Market Funds: The After-Tax Yield Math by State
The highest headline yield isn't always the most money in your pocket. State income tax, access and how each option is taxed can flip the ranking. Here's the math, by federal bracket and state tax rate.
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📐 Figures verified Sep 27, 2026 against TreasuryDirect, the SEC's investor bulletins, the Federal Reserve and Rev. Proc. 2025-32. Yields in the examples are illustrative, not quotes; check today's rates before you move money. How we check numbers →
Compare after-tax yields, not headline rates. Savings accounts, CDs and most money market funds are taxed by your state; Treasury bills aren't. At 24% federal and 9.3% state, a 3.90% T-bill beats a 4.00% savings account. With no state income tax, the savings account wins. Treasury-only money market funds fall in between, depending on your state's rules.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Treasury bill interest | Federal income tax only; no state or local income tax | TreasuryDirect | Sep 27, 2026 |
| Treasury bill terms and minimum | 4, 6, 8, 13, 17, 26 and 52 weeks; $100 minimum | TreasuryDirect | Sep 27, 2026 |
| FDIC insurance on bank deposits | $250,000 per customer at each insured bank | SEC Investor Bulletin | Sep 27, 2026 |
| Money market fund protection | Not FDIC insured; SIPC if the firm fails | SEC Investor Bulletin | Sep 27, 2026 |
| Federal funds target range | 3.75%–4.00% | FOMC statement | Sep 27, 2026 |
| SOFR | 3.88% on Sep 24, 2026 | NY Fed via FRED | Sep 27, 2026 |
| 24% federal bracket, single (2026) | Taxable income above $105,700 | Rev. Proc. 2025-32 | Sep 27, 2026 |
Four Places for Cash, Taxed Four Ways
| Option | Taxed by | Protection | Getting your money |
|---|---|---|---|
| High-yield savings | Federal and state | FDIC | Any time; transfers take a day or two |
| Bank CD | Federal and state, as interest is credited | FDIC | At maturity, or early with a penalty |
| Brokered CD | Federal and state | FDIC at the issuing bank | At maturity, or sold at the market price |
| Government or Treasury money market fund | Federal; state only on the part not from U.S. government obligations | Not FDIC; SIPC for custody | Usually the next business day |
| Treasury bills | Federal only | Backed by the U.S. government | At maturity, or sold through a broker |
Rates move all the time and differ by bank and fund, so the table is about structure, not yields. Short-term market rates sit near the fed funds range, with SOFR at 3.88% on September 24, and money market funds and bills track them closely. Bank savings and CD rates are set by each bank.
The After-Tax Math
Multiply a fully taxable yield, such as a savings account's, by one minus your federal and state rates combined. Multiply a Treasury bill's yield by one minus your federal rate only. The larger result is the better deal. Put another way, here is the savings or CD yield needed to match a 3.90% bill:
| State income tax rate | 12% federal bracket | 24% federal bracket |
|---|---|---|
| 0% (no state income tax) | 3.90% | 3.90% |
| 3% | 4.04% | 4.06% |
| 5% | 4.13% | 4.17% |
| 7% | 4.24% | 4.30% |
| 9.3% | 4.36% | 4.44% |
| 13.3% | 4.59% | 4.73% |
The 3.90% bill yield is illustrative. The table ignores the federal deduction for state taxes, which matters only if you itemize.
Money Market Funds and Your State
A money market fund's state tax treatment depends on what it owns. Income from U.S. Treasury securities is exempt from state tax in most states, but income from repurchase agreements isn't, even in a government fund. Each fund publishes the share of its income that came from U.S. government obligations; in most states, that share of your dividends is exempt.
California, Connecticut and New York add a hurdle: the fund must hold at least 50% of its assets in U.S. government obligations at the end of each quarter, or none of the income is exempt there. Treasury-only funds usually clear it; many government funds with lots of repos don't. Fund companies flag which funds met the test in their annual U.S. government obligations reports.
Worked Example: $50,000 for a Year
- The setup: $50,000 set aside for a home down payment next year, a 24% federal bracket and a 9.3% state rate.
- High-yield savings at 4.00%: $2,000 of interest, $1,334 after both taxes.
- 12-month CD at 4.10%: $2,050, or $1,367.35 after tax.
- Treasury bills at 3.90%: $1,950, taxed only federally: $1,482, the most of the five, though two options advertise higher yields.
- Treasury-only money market fund at 3.80% that passes the state test: $1,444 after tax.
- Government money market fund at 3.85% that fails the 50% test in their state: fully state-taxed, $1,283.98.
All yields are illustrative; a year's interest without compounding, after federal and state income tax. The Brennans are an illustration.
Timing and Other Tax Details
- Bill interest is taxed when the bill matures. A bill bought in the fall that matures in January moves the interest into the next tax year.
- CD interest is taxed as it is credited, even if you don't touch it until the CD matures.
- Municipal money market funds pay income that is usually exempt from federal tax, and in-state funds may skip state tax too. Their yields are lower, so compare them after tax for your bracket.
- Report bill interest correctly on your state return. It shows up on your 1099-INT with other interest; subtract it where your state's form asks.
Decision Rules
If this, then that
- If you pay state income tax → compare Treasury bills and Treasury-only funds after tax; the exemption is worth more the higher your state rate.
- If your state has no income tax → compare headline yields, fees and access.
- If you live in California, Connecticut or New York → check that your money market fund passed the 50% test before counting on a state exemption.
- If you might need the money any day → keep it in savings or a money market fund; lock up only what you can leave alone.
- If you are buying near year-end → a bill that matures in January pushes the interest into next year.
Mistakes to avoid
- Picking the highest headline yield without the after-tax math.
- Assuming every government money market fund is state-tax-free.
- Breaking a CD early and giving back months of interest.
- Forgetting that brokered CD prices fall when rates rise.
- Buying bills that mature after you need the cash.
Related: how to build a T-bill ladder covers buying and rolling bills; real interest rates adds inflation to the math; brokerage cash sweeps shows what idle brokerage cash earns; and high-yield savings accounts covers the bank side. More guides are in the Banking & Savings hub.