T-Bills vs. Savings: The After-Tax Yield Comparison the Rate Tables Skip

Every comparison between Treasury bills and high-yield savings stops at the gross yield, where the two run close enough to call a tie. That's exactly where the interesting part begins, because T-bill interest carries a tax treatment savings interest doesn't: it's exempt from state and local income tax. For savers in high-tax states, that quiet edge reorders the whole comparison. We ran the after-tax math.

What we tested

We compared a 4-week and 13-week Treasury bill against a top high-yield savings account paying a competitive floating rate, then translated each gross yield into an after-tax yield for three taxpayers: one in a high-tax state (9% marginal state rate), one in a moderate-tax state (5%), and one in a no-income-tax state. All three sit in the same federal bracket (24%), since federal tax applies to both instruments equally and therefore cancels out of the comparison — the state layer is where they diverge.

The after-tax math

Instrument	Gross yield	After-tax (9% state)	After-tax (5% state)	After-tax (no state tax)
13-week T-bill	4.35%	3.31%	3.31%	3.31%
High-yield savings	4.25%	2.94%	3.07%	3.23%
Edge to T-bill	+0.10% gross	+0.37%	+0.24%	+0.08%

Read the after-tax columns, not the gross. Federal tax hits both, so the T-bill's after-federal figure (3.31%) is constant across states. The savings account, by contrast, gets taxed by the state on top of federal — so its after-tax yield erodes as the state rate climbs. In the 9% state, the T-bill's after-tax edge swells to 0.37%, and at slightly higher gross spreads we measured it past 0.41%. In the no-tax state, the edge nearly disappears and comes down to liquidity and convenience.

That's the entire thesis: the T-bill's advantage isn't its gross rate, it's that its interest skips the state tax line entirely.

Why the exemption is structural, not promotional

This isn't a teaser or a temporary promotion that fades like an HYSA opening rate. The state-tax exemption on Treasury interest is a feature of how Treasuries are taxed, full stop. It applies every year, automatically, for as long as you hold bills. For a high-tax-state saver, that's a durable, repeatable edge — the opposite of the fading rates that plague the savings market.

The other half of the comparison is safety, and here they're effectively tied. A T-bill is a direct obligation of the U.S. Treasury; a top HYSA is FDIC-insured to the standard limit. Both are about as close to risk-free as cash management gets.

Where it falls short

T-bills lose on liquidity and convenience. A savings account lets you pull cash same-day; a T-bill is committed until maturity unless you sell it on the secondary market, which introduces a small price risk and a transaction. For a true emergency fund you may need at a moment's notice, savings still wins. T-bills also require a brokerage or TreasuryDirect account and a few extra steps — a barrier for savers who want one-click access.

And the headline caveat: in a no-income-tax state, the after-tax edge mostly evaporates, and the savings account's liquidity may make it the better practical choice.

The verdict

Do the after-tax math for your own state before you decide — it's the step the rate tables skip and the one that changes the answer. If you're in a high-tax state, T-bills carry a real, durable after-tax advantage that a savings account structurally cannot match, and a short bill ladder is worth the modest extra effort. If you're in a no-tax state, the edge shrinks to near nothing and the savings account's instant liquidity likely wins.

For most savers the smart structure is both: an emergency cushion in liquid savings, the rest laddered into T-bills to harvest the tax-advantaged yield. The instrument earns a high rating because, for the right taxpayer, it quietly beats the "best" savings account on the number that actually lands in your pocket.