Comparison
Treasury Bills vs High-Yield Savings: Which Is Better for Your Cash?
Neither one is "better" across the board. The right choice depends on your tax bracket, your state, and when you need the money.
A Treasury bill can come out ahead of a high-yield savings account after taxes, because T-bill interest is exempt from state and local income tax, but you trade away some flexibility to get it. A high-yield savings account (HYSA) lets you move money any day, while a T-bill pays you back on a set date.
This guide explains how T-bills work, how to buy them, how to compare yields on an after-tax basis, and which kind of cash fits each one. It does not quote today's rates. It shows you where to find them and how to line them up.
How Treasury bills work
Treasury bills are short-term loans you make to the U.S. government. TreasuryDirect, the Treasury's own site, lists bill terms of 4, 6, 8, 13, 17, 26 and 52 weeks. You can buy them in $100 increments, starting at $100.
Bills do not pay interest each month like a savings account. Instead, they are sold at a discount (or sometimes at face value) and you receive the full face value at maturity. The difference is your interest.
You pay $990 for a bill with a $1,000 face value. At maturity you get $1,000. Your interest is $1,000 − $990 = $10. These numbers are made up to show the mechanics, not a real price.
New bills are sold at auction on a regular schedule that TreasuryDirect publishes. You can place a "noncompetitive" bid, which means you accept the rate the auction sets.
Buying T-bills: TreasuryDirect vs a brokerage
You can buy T-bills directly from the government at TreasuryDirect.gov, or through a bank or brokerage account. The bill is the same either way, but the experience is different.
TreasuryDirect
- Buy at auction straight from the Treasury
- Option to automatically reinvest at maturity
- No selling inside the account before maturity
- To sell early, you must first transfer the bill to a bank or broker
Brokerage account
- Buy at auction or on the secondary market
- Can sell before maturity at the market price
- Proceeds sit in the brokerage cash option
- Check the firm's own fees and order rules
Watch out: TreasuryDirect says you must hold a bill in your account for at least 45 days before you can transfer it to a broker to sell. If you might need the money sooner, plan for that before you buy.
Taxes: the state and local exemption
This is the biggest structural difference. Interest from Treasury securities is subject to federal income tax but exempt from state and local income tax. Interest from a savings account is generally taxable at the federal level and by your state, if your state has an income tax. For more on how savings interest is taxed, see our guide to taxes on savings interest.
So the after-tax gap depends on where you live. In a state with no income tax, the exemption is worth little. In a state with a high income tax, it can matter a lot.
A simple way to compare is to work out what each one keeps after tax:
After-tax T-bill yield = T-bill yield × (1 − federal rate)
Assume a 22% federal bracket and a 5% state income tax. These rates and yields are made up for illustration.
HYSA at a hypothetical 4.00% APY: 4.00% × (1 − 0.22 − 0.05) = 4.00% × 0.73 = 2.92% after tax.
T-bill at a hypothetical 3.80% yield: 3.80% × (1 − 0.22) = 3.80% × 0.78 = 2.96% after tax (rounded).
In this example the T-bill keeps slightly more even though its headline yield is lower. Change the state rate to 0% and the HYSA keeps more: 4.00% × 0.78 = 3.12%.
This shortcut ignores some real-world details, such as whether you itemize and deduct state taxes, and how each yield is quoted. Treat it as a quick screen, not a tax calculation. A tax professional can run your own numbers.
How to line up the two yields
Savings accounts quote an APY, which includes compounding over a year. T-bill results are quoted differently. TreasuryDirect's auction results show both a discount rate and an "investment rate." The investment rate is the closer match when you put a bill next to an APY, though the two are still not calculated in exactly the same way.
- Find the bill yield. Check the most recent auction results on TreasuryDirect for the term you want, or the yield your broker shows for that bill. Write down the date.
- Find the savings APY. Use the bank's own rate page and note the date and any conditions.
- Run both through the after-tax formula with your own federal and state rates.
- Remember the HYSA rate can change. A bill's return is set when you buy and hold to maturity. A savings APY is usually variable and can move during the same period.
Safety: government backing vs deposit insurance
Both are considered very low risk, but they are protected in different ways. Deposits at an FDIC-insured bank are insured up to $250,000 per depositor, per insured bank, for each account ownership category. Credit union deposits have the same standard amount through NCUA share insurance. See our FDIC insurance guide for how the limit works.
T-bills are not bank deposits, so FDIC insurance does not apply to them. They are backed by the full faith and credit of the U.S. government. That backing has no $250,000 cap, which is one reason people with large balances look at bills. Our guide to savings for large balances covers other options.
Tip: If you hold T-bills at a brokerage, your account there is a separate question from the bills themselves. Check the firm's own disclosures on how customer assets are held.
Access: when you can get your cash
Money in an HYSA is usually available by transfer whenever you need it, subject to any limits the bank sets. That makes it a natural home for an emergency fund.
A T-bill pays you back on its maturity date. If you need the money earlier, you would have to sell the bill at its market price, which could be more or less than you paid, and in TreasuryDirect you would first have to transfer it out. That makes bills a better fit for money with a known date.
Which fits which kind of money
| Feature | Treasury bill | High-yield savings |
|---|---|---|
| What it is | Short-term U.S. government debt | Bank or credit union deposit |
| Protection | Backed by the U.S. government; not FDIC-insured | FDIC or NCUA insured up to $250,000 per category |
| Return | Set at purchase if held to maturity | Usually variable |
| State and local income tax | Exempt | Generally taxable |
| Minimum | $100 at TreasuryDirect | Varies by bank |
| Access | At maturity, or sell at market price | Transfer any time, within bank limits |
| Common fit | Money for a known date | Emergency fund, flexible savings |
Many savers use both: an HYSA for money they might need any day, and bills matched to dates they know, such as a tax payment or tuition bill. If you like the idea of locking a rate for a set term at a bank instead, compare CDs too.
Frequently Asked Questions
Are Treasury bills better than a high-yield savings account?
It depends on your situation. T-bills can keep more after tax if you live in a state with an income tax, because Treasury interest is exempt from state and local income tax. A high-yield savings account is more flexible, since you can usually withdraw any time.
Are T-bills FDIC insured?
No. T-bills are not bank deposits, so FDIC insurance does not apply. They are backed by the full faith and credit of the U.S. government instead.
What is the minimum to buy a Treasury bill?
At TreasuryDirect, you can buy bills in $100 increments starting at $100. A brokerage may have its own minimums and order rules, so check with the firm.
Can I sell a T-bill before it matures?
Yes, but not inside TreasuryDirect. You must hold the bill there for at least 45 days, then transfer it to a bank or broker to sell. At a brokerage you can sell at the market price, which could be more or less than you paid.
Do I pay state tax on T-bill interest?
No. Interest on Treasury securities is subject to federal income tax but exempt from state and local income tax. Savings account interest is generally taxed by both.
Compare today's savings APYs against your T-bill quote
See APYs, minimums and conditions for 25+ FDIC-insured accounts side by side, then run them through the after-tax formula above. Confirm current rates on each bank's site.
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