CDs vs. T-Bills: What's the Better Investment Now? (2024)

FAQs

CDs vs. T-Bills: What's the Better Investment Now? ›

Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.

If you want to lock in a high APY for several years: With today's current rates, you may want to lock in a high APY for a longer period, such as five to 10 years. If that's the case, CDs are the clear winner over T-bills. The maximum term for a T-bill is 52 weeks, while CDs can have terms as long as 10 years.

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Compared with Treasury notes and bills, Treasury bonds usually pay the highest interest rates because investors want more money to put aside for the longer term. For the same reason, their prices, when issued, go up and down more than the others.

With savings rates still high and interest rate cuts possible in 2024, savers today are giving a lot of attention to CDs. A certificate of deposit, or CD, lets you lock in a fixed interest rate for a fixed amount of time. That's an attractive option in today's market, where savers can find CD rates above 5%.

1 Year Treasury Rate (I:1YTCMR)

1 Year Treasury Rate is at 5.10%, compared to 5.10% the previous market day and 5.29% last year. This is higher than the long term average of 2.96%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.

T-bills are short-term U.S. debt securities. They are currently paying around 5% and are considered a risk-free investment if held to maturity. Alieza Durana joined NerdWallet as an investing basics writer in 2022.

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.

What is the downside of T-Bill? ›

However, should interest rates rise, the existing T-bills fall out of favor since their return is less than the market. For this reason, T-bills have interest rate risk, which means there is a danger that bondholders might lose out should there be higher rates in the future.

When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.

Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.

CD drawbacks

There are a few key points to keep in mind before opening one. Lower returns: If you're looking for a way to build wealth, CDs may offer only limited benefits. You could get better returns for your money by putting it into the market and buying stocks, mutual funds, or other investments instead.

A higher rate set by the Federal Reserve means lower returns on T-bills. By contrast, CDs and high-yield savings accounts tend to give higher returns as the Federal Reserve benchmark rate increases.

Pros and Cons of T-Bills

T-bills pay a fixed rate of interest, which can provide a stable income. However, should interest rates rise, the existing T-bills fall out of favor since their return is less than the market.

6 Month Treasury Bill Rate is at 5.15%, compared to 5.15% the previous market day and 5.18% last year. This is higher than the long term average of 4.49%. The 6 Month Treasury Bill Rate is the yield received for investing in a US government issued treasury bill that has a maturity of 6 months.

Key Takeaways

Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT.