Quick Answer
HYSAs (4.0% to 5.0%) fit emergency funds, CDs (4.0% to 4.75% on top 12-month terms) fit 1-to-5-year goals and lock rates before Fed cuts, and Treasuries match CD yields while being exempt from state income tax. Most savers should combine all three rather than pick one.
Key Takeaways
- Top 12-month CDs pay 4.0% to 4.75% and lock the rate; HYSAs pay 4.0% to 5.0% but can drop any week (as of July 2026).
- Treasury interest is exempt from state and local tax, which flips the after-tax ranking in states like California, New York, and New Jersey.
- CDs charge 3 to 6 months of interest to exit early; Treasuries can be sold any day but at market price; HYSAs have no exit cost at all.
- Match the vehicle to the money: HYSA for the emergency fund, CD ladder for 1-to-5-year goals, T-bills for big balances and high-tax states.
Tahir Özcan
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Cash pays real money again. Top 12-month CDs offer 4.0% to 4.75% APY, online savings accounts pay 4.0% to 5.0%, and the 10-year Treasury yields 4.68% (as of July 2026). With the three options separated by fractions of a percent, the deciding factors are usually taxes, liquidity, and what happens to each one when the Federal Reserve moves.
The right answer depends on when you need the money and what state you pay taxes in. Below is how the three vehicles actually differ once you look past the headline rate.
High-Yield Savings Accounts: Maximum Liquidity
An online HYSA is the only one of the three with no commitment: deposit and withdraw whenever you like, FDIC-insured up to $250,000 per depositor per bank. Competitive accounts pay 4.0% to 5.0% (as of July 2026), while the big brick-and-mortar banks still pay well under 1%, so where you hold the account matters more than which product you pick.
The catch is that the rate is variable. Your bank can (and will) cut it the week the Fed cuts. In the 2020-2021 cycle, HYSA yields fell from about 2% to 0.5% within a year. A HYSA is the right home for an emergency fund precisely because you accept rate risk in exchange for instant access.
Certificates of Deposit: Locked-In Rates
A CD trades liquidity for certainty: the bank guarantees the quoted APY for the full term, and in exchange you pay a penalty (typically 3 to 6 months of interest on 1-year terms, more on longer ones) to exit early. Top 12-month CDs currently pay 4.0% to 4.75% (as of July 2026), with credit unions and online banks consistently beating national averages.
CDs shine when rates are about to fall. Lock a 4.5% five-year CD today and a 2027 Fed cutting cycle cannot touch it. They are FDIC-insured like savings accounts, and a ladder of staggered maturities removes most of the liquidity objection: one rung is always close to maturing.
Interest is taxed as ordinary income at both the federal and state level, which is the main tax disadvantage against Treasuries for anyone in a state with an income tax.
Treasury Bills and Notes: State Tax Exemption
T-bills (4 to 52 weeks) and Treasury notes (2 to 10 years) are backed by the federal government, bought commission-free at TreasuryDirect or through any brokerage, and their interest is exempt from state and local income tax. For a saver in California (up to 13.3% state tax) or New York, a 4.3% T-bill can out-earn a 4.6% CD after tax.
Unlike a CD there is no early-withdrawal penalty; you can sell a Treasury on the secondary market any business day. The tradeoff is price risk: if rates rise after you buy, selling early means selling at a discount. Hold to maturity and you get exactly the yield you locked in.
For amounts above the $250,000 FDIC ceiling, Treasuries are also the simplest way to stay fully government-backed without splitting money across multiple banks.
Head-to-Head: $50,000 for One Year
Here is how the three compare on the dimensions that decide the choice:
- Yield: top 12-month CDs 4.0% to 4.75%; HYSAs 4.0% to 5.0% but variable; 1-year T-bills track the Fed funds rate (upper bound 3.75%, as of August 2026).
- Taxes: Treasuries win in high-tax states (state-tax exempt); CDs and HYSAs are fully taxable.
- Liquidity: HYSA instant; Treasury sellable any day (price may vary); CD locked behind a penalty.
- Rate risk: CD none once locked; Treasury none if held to maturity; HYSA fully exposed to cuts.
- Insurance: CDs and HYSAs FDIC-insured to $250,000; Treasuries carry direct federal backing with no ceiling.
The Smart Strategy: Use All Three
Most savers do not need to pick a single winner. A common structure: keep 3 to 6 months of expenses in a HYSA as the emergency layer, ladder CDs for money with a 1-to-5-year timeline (a house down payment, a car fund), and use T-bills for large short-term balances or if you live in a high-tax state.
Run your own numbers in the CD Ladder Calculator to see how a 5-rung ladder compares against leaving the same balance in savings, then check current Treasury auction yields before committing the tax-sensitive portion.
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Frequently Asked Questions
Are Treasury bills safer than CDs?
Both are effectively risk-free for principal when held to maturity. CDs are FDIC-insured up to $250,000 per depositor per bank; Treasuries are direct obligations of the US government with no coverage ceiling. Above $250,000 at a single institution, Treasuries are the simpler safe choice.
Which pays more after taxes, a CD or a T-bill?
In a no-income-tax state (Texas, Florida, Washington), whichever has the higher headline rate wins. In a high-tax state, multiply the CD rate by (1 minus your state marginal rate) before comparing: for a Californian in the 9.3% state bracket, a 4.50% CD is worth about 4.08% against a state-tax-exempt T-bill.
Should I move my emergency fund from a HYSA into CDs for the higher rate?
Generally no. An emergency fund exists to be spent on short notice, and a CD early-withdrawal penalty of 3 to 6 months of interest can erase more than the extra yield. Keep the emergency layer liquid and ladder only money with a known timeline.
What happens to each option when the Fed cuts rates?
HYSA yields fall almost immediately. New CDs and new Treasuries are issued at lower rates, but anything you already locked keeps paying its original yield to maturity. That asymmetry is why locking a portion of savings before an expected cutting cycle is the core argument for CDs and notes.
Primary Sources
Last reviewed:
All 2026 figures in this article come from the official statutory releases linked below and are updated when the IRS, SSA, CMS, FHFA, or HUD publish new figures. The article shows the date it was last reviewed.
- BLS. Consumer Price Index(published )
Figures are updated whenever the IRS, SSA, CMS, FHFA, HHS, or BLS publishes a new inflation adjustment or statutory change. This tool is for educational purposes only and does not constitute tax, legal, or investment advice. Consult a qualified professional for decisions affecting your personal finances.