The Bank CD Finally Beats the Treasury. Then Your State Takes Its Cut.

If you’ve got cash you won’t touch for a few years, the boring bank product just took the lead. The best three-year CDs are paying 4.50%. The three-year Treasury note pays 4.25%.

That flip hasn’t happened in years. It also isn’t the whole story, and the part nobody puts in the ad is worth about a quarter point to you.

What changed

The Fed’s own H.15 release put the three-year Treasury yield at 4.25% on August 25. One-year sat at 4.01%, five-year at 4.35%, ten-year at 4.64%.

Fortune’s CD tracking on August 24 had the top nationally available CDs at 4.50% APY. Bread Savings pays that on an 18-month term. Popular Direct pays it on three- to five-year terms.

A federally insured bank deposit out-earning a government bond of the same length is unusual. For most of the past few years the Treasury won on yield and the CD’s whole pitch was convenience.

Banks price CDs off where they think rates are headed, and they’d like your money locked up before the Fed moves. The fed funds rate sits at 3.50% to 3.75%. The next Fed meeting is September 15 and 16.

Here’s the catch

Treasury interest is exempt from state and local income tax. TreasuryDirect puts it in five words: “No state or local taxes.”

CD interest gets no such break. Your state taxes it like a paycheck.

So run it. A 4.50% CD in a state with a 5% income tax nets you 4.275%. Still ahead of the Treasury, barely. At a 6% state rate the CD nets 4.23% and the Treasury wins. At 8% the CD nets 4.14% and it isn’t close.

The honest version isn’t “CDs beat Treasuries.” It’s “CDs beat Treasuries if your state doesn’t take much.” In a state with no income tax, the CD wins outright.

The number that should bother you more

The FDIC’s national average for a 36-month CD is 1.34%. Twelve-month, 1.71%. Plain savings, 0.38%.

That’s what banks actually pay on average, not what the good ones advertise. Put $25,000 in a three-year CD at 1.34% and you earn about $1,020. At 4.50% you earn about $3,530.

The bank’s bet is that you’ll roll your maturing CD into whatever it puts in front of you and never price the alternative.

Do this

Look up the rate on your current CD or savings account this week. If it starts with a 1 or a 0, you’re the average, and the average is losing to a Treasury note by three points.

Then pick a lane. If your state taxes interest at any real rate, buy the note through TreasuryDirect or your brokerage and skip the state tax. The minimum is $100. If your state doesn’t tax income, take the CD and don’t overthink it.

Decide before September 16. Both numbers move when the Fed moves, and today’s rate is not a standing offer. Run your balance against both in our savings calculator, and see where the top rates sit on our best savings accounts page.

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