Treasury Bills vs HYSA: The State Tax Math That Actually Decides It (2026 Rates)
As of August 6, 2026, the 3-month Treasury bill was yielding 3.82%, while the best high-yield savings accounts were advertising APYs in the 4.15% to 4.21% range. On the surface, that settles it — the savings account pays more. It doesn’t settle it, because Treasury bill interest is exempt from state and local income tax and savings account interest is not.
This is the whole question in treasury bills vs HYSA, and the answer is different depending on which state you file in. Below is the exact breakeven math, a side-by-side comparison of how the two instruments actually behave, and a decision framework for which one belongs in each part of your cash. If you live in a state with no income tax, you can probably stop reading after the first table. If you live in California or New York, the answer flips.
Treasury bills vs HYSA: the side-by-side
Both are about as safe as a dollar gets, both are short-duration, and both are places people park cash they’ll need within a couple of years. The differences are in taxation, access, and how the rate you’re quoted behaves over time.
| Feature | Treasury bills | High-yield savings (HYSA) |
|---|---|---|
| Yield (Aug 6, 2026) | 3.69% (4-week), 3.82% (3-month) | Roughly 4.15%–4.21% at top banks |
| Federal income tax | Yes | Yes |
| State & local income tax | Exempt | Fully taxable |
| Backed by | Full faith and credit of the U.S. government; no dollar cap | FDIC insurance, $250,000 per depositor, per bank, per ownership category |
| Rate behavior | Locked at purchase until maturity | Variable; the bank can cut it any day |
| Access to your money | At maturity, or sell on the secondary market at whatever price it fetches | Same or next business day |
| Minimum | $100 via TreasuryDirect | Often $0 |
| Tax form | 1099-INT (box 3, U.S. obligations) | 1099-INT (box 1) |
Two rows in that table do most of the work. The state tax row is why a lower headline yield can still win. The rate behavior row is why a higher headline yield can quietly stop being higher.
The breakeven math: what your state tax rate does to the comparison
Because T-bill interest escapes state and local tax, you have to gross it up before comparing it to a savings account. The formula is straightforward:
Taxable-equivalent yield = T-bill yield ÷ (1 − your state marginal tax rate)
Run the 3.82% three-month bill through that formula and here is what a savings account would need to pay to match it:
| Your state marginal rate | Example | HYSA APY needed to match a 3.82% T-bill | Winner at a 4.20% HYSA |
|---|---|---|---|
| 0% | TX, FL, WA, TN, NV | 3.82% | HYSA |
| 3.0% | Many flat-tax states | 3.94% | HYSA |
| 5.0% | Mid-bracket, many states | 4.02% | HYSA, narrowly |
| 9.3% | Upper-middle CA bracket | 4.21% | Effectively a tie |
| 10.9% | Top NY bracket | 4.29% | T-bill |
| 13.3% | Top CA bracket | 4.41% | T-bill |
Read that table honestly and the conclusion is less exciting than the internet suggests. For most Americans right now, the high-yield savings account is winning or tying — because rate spreads have compressed and banks are competing aggressively for deposits. The T-bill’s tax advantage only becomes decisive above roughly a 9% state marginal rate, which describes a minority of filers.
On $25,000 of cash, the gap between 4.20% and a tax-adjusted 3.82% in a no-tax state is about $95 a year. Real, but not life-changing — and smaller than what most people leave on the table by not moving cash out of a low-rate account at all. The FDIC put the national average savings APY at 0.38% as of July 20, 2026, which means the median savings account is earning about a tenth of what a competitive one pays. That gap is about $955 a year on the same $25,000 — ten times the T-bill-versus-HYSA difference. If you’re still deciding where the liquid portion should live at all, our breakdown of the difference between a HYSA and a money market account covers that comparison in detail.
Want to see what your cash actually compounds to at different rates?
Where Treasury bills genuinely win
High state tax plus a large balance. The tax exemption scales with dollars. At 13.3%, a $150,000 cash position generates a meaningful annual difference — enough to justify the extra logistics.
Balances over FDIC limits. FDIC coverage stops at $250,000 per depositor, per insured bank, per ownership category. Treasuries are direct obligations of the U.S. government with no insurance cap. If you’re sitting on a home down payment or a business reserve above that threshold, spreading across banks to stay insured is real work, and T-bills sidestep it entirely.
You want the rate locked. A savings APY is a marketing number the bank can revise at any time, and it typically falls fast when the Fed cuts. A T-bill’s yield is fixed the moment you buy it. If your read is that short rates are heading down, locking a 6-month or 12-month bill removes that risk for that window.
You want a defined maturity date. If you know you need $40,000 in March, buying a bill that matures in March is a clean structural match. This is the same logic behind sinking funds organized into defined categories — matching the timing of the money to the timing of the need, rather than keeping one undifferentiated pile.
Where the HYSA genuinely wins
Emergency funds. This isn’t close. An emergency fund needs to be accessible on the day you need it, not on the day a bill matures. Selling a T-bill early means selling into the secondary market at whatever price it fetches, which can be below what you paid if rates have risen. Keep the emergency fund liquid.
Anything under about $10,000. The absolute dollar difference is too small to justify managing auction dates, rollovers, and a separate TreasuryDirect login. Below roughly $10,000, optimize for the thing you’ll actually maintain.
You live in a state with no income tax. The T-bill’s entire structural advantage disappears. You’re comparing 3.82% to 4.20% with no adjustment, and the savings account simply pays more.
You add and withdraw frequently. Irregular cash flow and fixed maturity dates fight each other. Savings accounts don’t care when you move money.
How to actually buy a Treasury bill
Two routes. Through a brokerage, T-bills appear in a fixed-income or bond section; you can buy at auction or on the secondary market, and most major brokers charge nothing for new-issue Treasuries. Through TreasuryDirect, you buy directly from the government with a $100 minimum and $100 increments.
The brokerage route is easier for most people because the cash lands back in an account you already use, and you can see everything in one place. TreasuryDirect is free and has an auto-reinvest option for maturing bills, but the interface is famously dated and moving money out takes a linked bank account you’ve verified in advance.
One tax-filing detail worth knowing: T-bill interest arrives on a 1099-INT in box 3, “Interest on U.S. Savings Bonds and Treasury obligations,” separate from ordinary interest in box 1. Tax software generally handles the state exclusion automatically when the amount is entered in box 3, but it’s worth confirming the exclusion actually appeared on your state return — this is a common quiet filing error.
I moved a chunk of my own cash reserve into short bills a while back, partly for the tax reason and partly because I’m a software engineer by trade and wanted to see whether I could automate the rollover cleanly. I could, mostly. What I didn’t anticipate was how much the maturity calendar occupied mental space for a benefit that, at my balance, worked out to a couple hundred dollars a year. I’ve since split the difference: emergency money in a savings account where I never think about it, longer-dated cash with a known spend date in bills. The behavioral-economics angle here is the interesting part — a strategy you abandon in month four returns zero regardless of how good the spreadsheet looked in month one.
A simple allocation rule
Rather than picking a single winner, split your cash by when you need it:
- 0–6 months of expenses (emergency fund): HYSA. Full stop. Liquidity beats yield here.
- Money with a known spend date 3–12 months out: T-bill matched to that date, if your state rate is above roughly 5% or the balance is large.
- Cash above FDIC limits: T-bills, or spread across banks — but T-bills are less administrative work.
- Money you won’t need for 5+ years: Neither. At these yields, cash roughly keeps pace with inflation and no more. That money belongs in a diversified portfolio — see our walkthrough of building a three-fund portfolio as a beginner.
One more layer for people who already have taxable and tax-advantaged accounts: interest income is taxed at ordinary rates, which makes cash-like holdings a good candidate for tax-sheltered space. That’s the core idea in asset location versus asset allocation, and it can matter more than the T-bill-versus-HYSA choice itself.
Frequently asked questions about treasury bills vs HYSA
Are Treasury bills safer than a high-yield savings account?
Both are extremely safe, in slightly different ways. T-bills are backed by the full faith and credit of the U.S. government with no dollar limit. HYSA deposits are insured by the FDIC up to $250,000 per depositor, per bank, per ownership category. Below that limit the practical difference is negligible; above it, Treasuries have the edge because insurance caps don’t apply.
Do I pay taxes on Treasury bill interest?
You pay federal income tax on it. You do not pay state or local income tax on it — interest from Treasury securities is exempt from state and local income taxation. HYSA interest is taxable at every level.
Can I get my money out of a Treasury bill early?
Yes, but not for free. You sell it on the secondary market at the prevailing price, which may be more or less than you paid depending on where rates have moved. Bills held through a brokerage are easier to sell than bills held at TreasuryDirect. Because of this, don’t put emergency money in bills.
What happens to my HYSA rate if the Fed cuts rates?
It generally falls, often within weeks, and banks are not required to notify you in advance. A T-bill you already own is unaffected — its yield was locked at purchase. This asymmetry is the main non-tax argument for bills when you expect rates to decline.
Is $5,000 enough to bother with Treasury bills?
Usually not. At $5,000, the difference between a competitive HYSA and a tax-adjusted T-bill is typically a few dollars a month at current spreads. The setup and rollover management aren’t worth it at that size. Put the effort into making sure the $5,000 isn’t sitting at the 0.38% national average instead — that comparison is worth roughly 40 times more.
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