U.S. Treasury Bills vs. CDs: Discount Rate, APY, and Access

A U.S. Treasury bill is a direct debt obligation of the federal government with a maturity of one year or less. It is generally sold below face value; at maturity, the Treasury pays the bill’s face value. The difference between the price and face value is the bill’s interest. A certificate of deposit, or CD, is a time deposit issued by a bank or credit union under a deposit contract. A bank CD is a deposit claim on that institution, subject to the product’s terms and any applicable deposit insurance. {source:treasuryDirectUnderstandingPricing} {source:fdicInsuredDeposits}

This guide compares a Treasury bill held to maturity with a fixed-term CD for a U.S. investor using taxable cash. It does not compare a Treasury money market fund, a bank sweep, a callable or market-linked CD, or a brokered CD with a direct bank CD as if those were interchangeable. A brokered CD is still a bank deposit, but its purchase, custody, insurance records, and exit route can involve an intermediary. The offering document and named issuing bank matter. {source:fdicShoppingForCD} {source:finraBrokeredCDNotice}

A Treasury bill discount rate is calculated from the bill’s face value and uses a 360-day year. The purchase price formula is: price = face value × (1 − discount rate × days / 360). A CD’s annual percentage yield, or APY, expresses the annualized effect of interest and compounding over the CD’s actual term. APY is not simply a rate applied to the amount printed on a Treasury bill. {source:treasuryDirectUnderstandingPricing} {source:cfpbApyAppendixA}

For a bill, a useful simple annualized investment rate is: ((face value − price) / price) × (365 / days), for an ordinary non-leap-year comparison. That calculation uses the cash actually paid as its denominator and a 365-day year. It is still a simple annualization, not an effective annual yield with repeated compounding. The Treasury auction also determines the rate: a noncompetitive bidder agrees to accept the auction result rather than locking a known rate in advance. {source:treasuryDirectBuyingMarketableSecurity} {source:treasuryDirectUnderstandingPricing}

Assume a hypothetical 91-day bill has a $10,000 face value and a 4.00% discount rate. Its price is $10,000 × (1 − 0.04 × 91 / 360) = $9,898.89. If held to maturity, it pays $10,000, so the $9,898.89 purchase produces $101.11 before tax. The simple annualized investment rate is about 4.097%, or 4.10% when rounded.

Now put the same $9,898.89 into a hypothetical 91-day CD paying 4.10% APY. Using interest = principal × ((1 + APY)^(days / 365) − 1), the CD earns about $99.66 and returns about $9,998.55 at the end of the term. Under these specific assumptions, the bill produces about $1.45 more before tax. The small difference is a lesson in quote conventions, not a current-rate comparison or a forecast. The bill’s 4.00% discount rate and the CD’s 4.10% APY are not the same measure. Actual auction price, CD compounding and day-count terms, fees, settlement dates, and rounding can change the result. {source:treasuryDirectUnderstandingPricing} {source:cfpbApyAppendixA}

For U.S. federal income-tax purposes, interest from Treasury bills is generally taxable federally but exempt from state and local income taxes. CD interest is generally taxable as interest income; state and local treatment depends on applicable law and the account. That state-tax distinction can change the after-tax comparison for someone whose state taxes bank interest, but it does not guarantee that a bill has a higher after-tax return. {source:irsPublication5502025}

A useful comparison keeps the actual dollars, holding period, account type, and tax assumptions visible. Do not take a federal marginal tax rate, subtract it from one quoted rate, and call the result a complete after-tax yield. State rules, account location, income timing, deductions, and an investor’s tax circumstances can affect the calculation. Treasury bills held through maturity and CDs can also be reported under different information-return lines. Use current IRS guidance or a tax professional for a return-specific question; the example above is pre-tax and deliberately does not estimate an individual tax bill. {source:irsPublication5502025}

An eligible CD at an FDIC-insured bank can receive FDIC deposit insurance up to the applicable limit—generally $250,000 per depositor, per insured bank, for each ownership category. The calculation includes principal and accrued interest and aggregates qualifying deposits at the same bank in that category. A bank name shown by a broker does not by itself prove that a particular balance is fully insured; ownership records, pass-through requirements, and other deposits can matter. Verify the issuing bank and total exposure. {source:fdicInsuredDeposits} {source:fdicShoppingForCD}

A Treasury bill is not an FDIC-insured deposit. It is a U.S. government security backed by the federal government’s obligations. These protections describe different sources of credit support, not a promise that either product preserves purchasing power or can be sold at any moment for its expected maturity amount. Both choices still expose the holder to inflation and the opportunity cost of locking in a term; market prices can matter if a security is sold early. {source:fdicInsuredDeposits}

With a direct bank CD, withdrawing before maturity may trigger an early-withdrawal penalty set by the deposit contract. Check how the penalty is calculated, whether it can reduce principal, whether partial withdrawals are allowed, and how the institution handles a maturity that falls on a non-business day. A CD’s APY assumes the stated term and contractual interest rules; it does not describe the return after an early withdrawal. {source:fdicShoppingForCD}

A brokered CD may not be redeemable early through the issuing bank. An investor who needs to exit may have to sell it in a secondary market, where the available price can be below the purchase amount and a market may be limited or absent. A Treasury bill can also be sold before maturity through a broker, but the price then depends on market conditions. If held in TreasuryDirect, new marketable securities generally must be held for 45 calendar days before transfer or sale, subject to the stated reinvestment exception. Check the actual account and channel rather than assuming every bill has the same exit procedure. {source:finraBrokeredCDNotice} {source:treasuryDirectBuyingMarketableSecurity}

A bill pays its face value at maturity. The owner can use the proceeds or buy another security; the rate on a future auction is not known in advance. If rates have fallen, the next bill may earn less; if rates have risen, it may earn more. Repeatedly buying short bills therefore adds reinvestment risk even when a particular bill is held to maturity. {source:treasuryDirectBuyingMarketableSecurity}

A CD follows its contract. Some bank CDs renew automatically unless the depositor acts within a notice window. The renewal may use the rate and term offered then, not the original rate. Review the maturity notice, grace period, renewal term, and withdrawal penalty before the decision date. Callable or brokered CDs can have additional terms; an issuer’s call right and an investor’s ability to sell are not the same option. A maturity date is useful only if the cash will be available in the right account when needed. {source:fdicShoppingForCD} {source:finraBrokeredCDNotice}

First, match the intended number of days and the amount of cash paid on day one. For a bill, record face value, auction discount rate, price, maturity proceeds, and the investment-rate convention. For a CD, record APY, actual term, compounding, opening balance, maturity value, and any minimum or fee. If the bill price is below your starting cash, state whether leftover cash stays idle or earns something else; it belongs in the comparison.

Then check the issuing bank and aggregate FDIC coverage, federal and state tax treatment, early-withdrawal or sale mechanics, transfer restrictions, and maturity instructions. Ask whether a rate is fixed, callable, promotional, or available only through a broker. For an additional Treasury cash-flow example, see the bill-ladder guide and Treasury auction results guide. For a broader tax-rate comparison, see the municipal-bond tax-equivalent-yield guide.

No headline percentage settles the decision by itself. A bill can fit a dated cash need; a CD can fit a fixed deposit term with a clearly understood bank contract. The relevant comparison is the cash committed, the amount and date expected back, the protections and taxes that apply, and the price or penalty if the plan changes. This is educational information about U.S. products, not a recommendation or individual tax advice.