Treasury Bills vs. CDs: What’s the Difference?

When deciding between Treasury bills (T-bills) and certificates of deposit (CDs), it’s important to consider the key differences in risk, returns and maturity terms.

The US government backs T-bills, offering a short-term, virtually risk-free investment option. CDs provide a fixed interest rate, with longer terms and the security of Federal Deposit Insurance Corporation (FDIC) protection.

Understanding how each fits into your financial strategy can help you choose the best option for your investment needs

T-Bills vs. CDs: Key differences

	T-Bills	CDs
Issuer	Issued by the US government.	Issued by banks and credit unions.
Risk level	Considered virtually risk-free; backed by the US government.	Low-risk, typically insured by FDIC up to $250,000 per depositor.
Interest rate	Sold at a discount and mature at face value instead of paying interest payments; gains come from the difference between purchase price and face value.	Can have fixed or variable rates, but fixed-rate CDs are most common.
Maturity	Short-term maturities ranging from a few days to one year.	Usually have shorter terms, ranging from months to five years.
Market trading	Can be traded on the secondary market before maturity.	Cannot be traded; must be held until maturity or withdrawn early with penalties.
Principal	Principal is fully protected, as the US government backs them.	Principal is safe, and full amount is returned at maturity, assuming no early withdrawal.
Insurance	Not insured by the FDIC or other agencies.	Typically insured by the FDIC up to $250,000 per depositor per bank.
Interest payments	Sold at a discount and mature at face value; the difference between purchase price and face value represents the interest earned.	Interest may be paid at maturity or periodically, depending on the terms.
Taxation	Interest earned is subject to federal income tax but exempt from state and local taxes.(1)	Interest is subject to both federal and state/local taxes.

What is a Treasury Bill?

Commonly known as T-bills, Treasury Bills are short-term debt instruments the US government issues to raise money.⁽¹⁾ When you purchase a T-bill, you are lending your money to the government for a term that ranges from four to 52 weeks.

T-bills are issued at a discount, meaning you buy them for less than their face value, and the government repays you the full face value at maturity. The difference between what you pay and the face value represents your interest earned.

Because T-bills are backed by the full faith and credit of the US government, Treasury Bills are attractive to investors seeking a low-risk, fixed-income security.

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4.4

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Public Treasury Account

Get 4.32%* yield on your cash. Purchase Treasury Bills in seconds and access your money at any time.

• $0 commission for U.S. listed stocks and ETF trades placed during regular US market hours, and competitive trade fees for alternative assets.
• No payment for order flow (PFOF) on equities, ensuring optimal price execution for your trades.
• A community-driven experience with real-time insights and advanced data at your fingertips.

Pros

• Zero default risk, since T-bills are backed by the US government. Investors can trust they will receive the face value of the T-bill at maturity, making them a secure option for capital preservation.
• Low minimum investment requirement of $100. T-bills can be purchased with a $100 minimum investment, which is relatively low compared to many other investment options, making them accessible to investors who don’t have a lot of cash.
• No state or local taxes on interest income. Interest earned on T-bills is exempt from state and local taxes, offering potential savings, especially in high-tax states.

Cons

• T-bills don’t pay interest. T-bills don’t pay regular income. Instead, they’re sold at a discount, and the gain is realized at maturity, which may not suit those needing steady cash flow.
• Low return on investment. While T-bills are safe, their low yields may not provide sufficient growth for investors looking to outpace inflation or achieve higher returns compared to riskier investments like stocks or corporate bonds.
• Short-term maturity limits long-term growth. T-bills have short maturities, usually up to one year. This shorter time frame limits their potential for long-term wealth accumulation compared to longer-term investments such as CDs or bonds.

What is a CD?

A certificate of deposit (CD) is a specialized savings account that allows you to deposit a fixed sum for a predetermined duration, known as the term, which can vary from three months to 10 years.⁽²⁾

In return for keeping your funds untouched during this period, the bank or credit union offers you a fixed or variable interest rate, typically higher than that of standard savings accounts. When the CD reaches maturity, you can withdraw your initial deposit and the interest earned.

CDs are regarded as a low-risk and stable means of accumulating savings because they’re usually FDIC-insured or insured by the National Credit Union Administration (NCUA) if at a credit union, up to $250,000 per depositor per bank. However, early access to your funds is usually subject to penalties.

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Western Alliance Bank 12 months CDs through Raisin

Western Alliance offers a strong 4.25% APY on its 12-month CD through Raisin. Pay no fees and just a $1 minimum deposit.

• 4.25% APY
• Interest compounds daily
• $0 monthly fee

Pros

• Guaranteed returns with a fixed interest rate. CDs provide stable, predictable growth since your interest rate is typically locked in, regardless of market changes.
• Safe and low-risk investment. CDs are generally safe, especially when backed by FDIC or NCUA insurance, protecting your money even if the bank or credit union encounters financial difficulties.
• Higher interest rates than savings accounts. CDs typically offer better rates than regular savings accounts since you’re committing to leaving your money untouched for a specified period, making them a good option for conservative savers.

Cons

• Inflation can reduce your buying power. If inflation rises faster than your CD’s interest rate, the real value of your returns may decline over time.
• Early withdrawal penalties. If you need your money before the CD matures, you could face penalties that eat into your earnings.
• Lower returns than other investments. CDs generally offer lower returns than riskier investments like stocks or bonds, meaning you might miss out on higher growth.

T-Bills or CDs: Which is right for you?

When choosing between T-bills and CDs, the decision often comes down to your financial goals and risk tolerance.

If you’re looking for a virtually risk-free, short-term investment that the US government backs, T-bills may be the right choice. If you prefer a longer-term commitment with a guaranteed interest rate, a CD could be the better fit.

If you’re ready to explore investment options, check out the best brokerage accounts to find the right platform for your financial goals.

Frequently asked questions

Can a minor own T-bills?

Minors cannot directly own Treasury Bills, but a parent, legal guardian or primary caregiver can set up a custodial account on the minor’s behalf. In this account, the custodian can purchase T-bills for the minor. Once the minor turns 18, they can open their own Treasury account, and the securities can then be moved or “de-linked” into the new account.⁽³⁾

Do you pay taxes on T-bills and CDs?

The interest earned on CDs is taxed as income by the Internal Revenue Service (IRS), meaning you are subject to paying not only federal income taxes but also state and local taxes.⁽⁴⁾ Interest from T-bills, on the other hand, is subject to federal income tax but exempt from all state and local income taxes.