CD vs. Treasury bills: Which is right for your money?
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When it comes to saving and investing money, there are many different options to choose from. Here, we'll be breaking down two common shorter term options: CDs and Treasury bills. Below, we discuss what each of these are, the differences between them, and what the returns look like for both.
What are CDs and Treasury bills?
A certificate of deposit (CD) is a type of savings account that holds your money for a set period of time and pays you interest in return. You usually can’t withdraw the money early without paying a penalty. In return, banks typically offer higher interest rates than savings accounts.
A Treasury bill is a short-term loan you give to the U.S. government. You buy the bill at a discount and receive the full amount when it matures, typically within a few weeks or months.
How safe are they?
CDs are issued by banks or credit unions, meaning that most are insured by the FDIC (for banks) or the NCUA (for credit unions). Your money is protected up to $250,000 for each account, even if the financial institution goes out of business.
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Treasury bills are backed by the U.S. government and are considered virtually risk-free due to the low risk of the government defaulting on its debt.
How do the returns compare?
When you put money in a CD, the bank sets the rate upfront, agreeing to pay you a fixed interest rate for the term, typically ranging from 1 to 5 years. The rate is locked in, and typically, the longer the term, the higher the interest rate.
Treasury bills don’t pay interest the traditional way. Instead, you buy them at a discount. For example, you might pay $970 for a Treasury bill that’s worth $1,000. When it matures, you will get the full $1,000 back, so you’ve earned 3% on your money. Treasury bills are offered in short terms, such as 4, 8, 13, 26, or 52 weeks, and the return is based on the current demand and market interest rates.
To help you calculate the differences, you can use a compound interest calculator.
CDs vs. Treasury bills: Key differences
There are a few key differences between the these two types of investments.
CDs often offer higher returns than Treasury bills because you’re locking in your money longer.
Treasury bills can be sold before they mature, although the price will depend on the current market value of the bill. CDs usually charge a penalty if you withdraw your money early.
Treasury bills are exempt from state and local taxes, which can be helpful depending on where you live. Interest from CDs is fully taxable.
When should you choose each one?
Both options are solid for short- to mid-term savings, but here’s how to decide based on your situation:
When interest rates are rising: Treasury bills may be more flexible. Their short terms let you reinvest at higher rates sooner.
When interest rates are falling: CDs can help you lock in a higher rate for longer before rates drop further.
If you need short-term access to your money: Treasury bills typically mature faster and can be sold if required. With CDs, you usually pay a penalty for early access.
To help your overall plan, learn more about the differences between saving and investing.
CDs vs. Treasury bills: Quick comparison table
Feature | CD (Certificate of Deposit) | Treasury Bill (T-bill) |
Security | Usually insured by the FDIC or NCUA. | Backed by the U.S. government. |
Return | Fixed interest rate, usually higher for longer terms. | Discounted price. You earn the difference at maturity. |
Tax treatment | Federal, state, and local governments tax interest. | Interest is taxed federally, but not by state or local. |
Liquidity | Low. Early withdrawals often come with a penalty. | High. Can be sold before maturity if needed. |
Maturity options | Depends on the bank or credit union; standard terms range from 3 months to 5 years. | 4, 6, 8, 13,17, 26, or 52 weeks |
How to buy | Through banks or credit unions | Through TreasuryDirect.gov or a brokerage account |
FAQs
Can I withdraw money from a CD early?
You can, but you’ll likely lose some of the interest you earned due to an early withdrawal penalty. That’s why CDs are best for money you don’t need right away.
Is TreasuryDirect a safe and easy-to-use platform?
TreasuryDirect is a secure government-run website where you can buy Treasury bills. It’s generally safe, but the site's functionality is outdated and can be cumbersome.
Do I have to pay taxes on the money I earn?
Yes, but it depends on the product. CD interest is taxed by federal, state, and local governments. Treasury bill earnings are only taxed federally, which may save you money depending on your state.
Can I use both CDs and Treasury bills?
Absolutely. Many people use both to balance their savings. For example, putting some more in short-term Treasury bills for quick access and locking in higher rates with longer-term CDs.
Safe, steady, and smarter savings
Whether you choose a CD, a Treasury bill, or a mix of both, you’ll have access to lower-risk interest rates. Understanding how each one can fit into your savings plan helps ensure your money is working effectively toward your goals.
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By: Brad Goldbach
Brad Goldbach is a writer focused on financial education, parenting, and tech. He brings over five years of journalism experience and a 12-year background in finance, including time as an advisor. At Greenlight, he’s written extensively on topics like investing for kids, credit building, and family budgeting. Married and a girl dad of two, Brad spends his free time reading, playing board games, and heading out on family hiking adventures when it’s not too hot in the Florida sun.
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