High-Yield T-Bills vs. CDs: November 2025 Guide
In November $\text{2025}$, fixed-income investments remain a compelling way to park cash safely while earning a respectable return. With short-term interest rates elevated, the decision often comes down to two low-risk products: **Certificates of Deposit (CDs)** and **Treasury Bills (T-Bills)**. While both lock in rates for a set period, their tax treatment and liquidity differ dramatically, making one a superior choice depending on your financial situation.
The Current Yield Landscape (November 2025)
In a volatile market, investors are chasing the best yield for short-term funds (e.g., emergency savings, down payments). Here is a comparison of typical short-term rates:
| Product | Typical 6-Month Yield (Approx.) | Safety Backing | Liquidity |
|---|---|---|---|
| **High-Yield CDs** | $\mathbf{4.20\%} - \mathbf{4.40\%}$ APY | FDIC Insured ($\mathbf{\$250k}$) | Low (Early withdrawal penalty) |
| **Short-Term T-Bills** | $\mathbf{3.70\%} - \mathbf{3.80\%}$ Yield | Full Faith & Credit of U.S. Govt | High (Can sell on secondary market) |
At first glance, a high-yield CD offers a slightly higher nominal return. However, this is where the **tax efficiency** of T-Bills becomes the deciding factor.
The Critical Tax Advantage of T-Bills
The core difference between CDs and T-Bills lies in how the interest income is taxed, especially for residents of states with high income tax:
T-Bills: Exempt from State and Local Tax
- Interest income from T-Bills is subject to **Federal Income Tax** only.
- It is **exempt** from all State and Local Income Taxes.
- **Impact:** For investors in high-tax states (like California, New York, or Massachusetts), this tax exemption can easily boost the effective, after-tax yield of a T-Bill above that of a seemingly higher-rate CD.
Interest from **CDs** is generally taxable at **Federal, State, AND Local** levels.
Calculating the True After-Tax Yield
To make a fair comparison, you must calculate the **Tax-Equivalent Yield** for T-Bills. For an investor in a $\mathbf{32\%}$ federal tax bracket and a $\mathbf{8\%}$ state tax bracket, a T-Bill yielding $\mathbf{3.80\%}$ can result in a higher take-home return than a CD yielding $\mathbf{4.40\%}$.
Liquidity and Risk Assessment
Safety
- **CDs:** Backed by the FDIC up to $\mathbf{\$250,000}$ per account holder, per institution.
- **T-Bills:** Backed by the full faith and credit of the U.S. Government, often considered the safest asset globally, with no statutory limit on the guarantee.
Flexibility (Liquidity)
- **CDs:** High penalty (often 3 to 6 months of interest) if you need the cash before maturity. This risk penalizes early withdrawal.
- **T-Bills:** Can be sold on the highly liquid secondary market at any time without penalty. However, the price you receive may be slightly higher or lower than your purchase price depending on prevailing interest rates at the time of sale (interest rate risk).
Conclusion: Which One is Right for You?
The choice depends on your tax situation and your need for flexibility:
- ✅ **Choose T-Bills if:** You live in a state with **high income tax** and prioritize the absolute highest level of safety and flexibility.
- ✅ **Choose High-Yield CDs if:** You live in a state with **no income tax** (or a very low one), you are certain you will not need the money before maturity, and you are comfortable with FDIC limits.
As short-term rates remain attractive, optimizing the tax structure of your safe cash is the most crucial step in low-risk investing.
Download our free Tax-Equivalent Yield Calculator to compare T-Bills against CDs based on your exact state and federal tax brackets.
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