CD vs. Treasury Bill: What’s the Difference?

What Are CDs?

A certificate of deposit is a type of savings account that holds a fixed amount of money for a set period—usually ranging from one month to several years—in exchange for a guaranteed interest rate.

CDs often offer higher yields compared to savings and money market accounts, but you agree not to touch the funds until the term ends. Withdrawing money early may result in a penalty, making CDs best suited for money you don't need right away.

Interest on CD deposits can be paid out in one of two ways: on regular intervals or at maturity. Some CDs only allow you to access the interest your account earns when the CD matures; others provide regular interest payments monthly, quarterly, semi-annually or annually. Be sure to understand the terms of your specific CD account regarding interest payments.

Learn more: How Much Money Should I Put in a CD?

Pros and Cons of CDs

CDs come with both benefits and drawbacks for investors and savers. Here's what to consider if you're thinking about opening a CD.

Learn more: The Pros and Cons of Certificates of Deposit (CDs)

What Are Treasury Bills?

A T-bill is a short-term debt security issued by the U.S. Department of the Treasury. T-bills are sold at a discount from their face value, and when they mature—typically in a few weeks to a year—the government pays the full face value.

The difference between the purchase price and the face value is the investor's return. Because they're backed by the U.S. government, T-bills are considered one of the safest investments available.

Learn more: Best Savings Accounts for Short-Term Goals

Pros and Cons of Treasury Bills

As with CDs, there are both advantages and disadvantages to consider before investing in a T-bill. Here's what you need to know.

CDs vs. Treasury Bills

The main differences between CDs and T-bills lie in how they pay out and how easily you can access your money. CDs typically offer regular interest payments but charge a penalty for early withdrawal.

T-bills, on the other hand, don't pay periodic interest. Instead, you earn a return at maturity. In terms of liquidity, they can be sold on the secondary market if needed.

Both are low-risk investments, but they serve different purposes. CDs work well for savers seeking a steady stream of income over a set term. T-bills, on the other hand, may appeal to short-term investors who want a secure, flexible place to park their cash and aren't concerned with having a consistent income stream.

Should You Invest in CDs or Treasury Bills?

CDs and Treasury bills both offer security and predictable returns, but one may fit your goals better than the other depending on your financial needs, timeline and risk tolerance. In either case, they're typically just one part of an investment and savings strategy that can include several other types of investments and accounts. Here are some scenarios where CDs or T-bills might make sense.

When to Consider Investing in CDs

• You want fixed, predictable returns. CDs offer a guaranteed interest rate and set maturity date, making them ideal if you value stability and want to know exactly how much you'll earn.
• You can commit to the term. If you don't need access to the funds during the CD's term, you can benefit from a higher rate without worrying about market fluctuations.
• You're saving for a specific future expense. CDs work well when you're planning for a known expense, like a wedding or tuition payment, and want to match the term to your timeline.
• You're a conservative investor. CDs are insured up to federal limits, so they're ideal if you're focused on preserving principal and avoiding risk.

When to Consider Investing in Treasury Bills

• You need access to your money sooner. T-bills have shorter maturity terms than many CDs, making them a good choice if you may need cash in the near future.
• You live in a state with a high income tax. Interest from T-bills is exempt from state and local income taxes, which can make them more tax-efficient than CDs in some cases.
• You want flexibility. While selling a T-bill early may result in a loss, you won't face an early withdrawal penalty like you would with most CDs.
• You're looking for a safe place for short-term funds. If you're waiting to invest elsewhere or just want to protect capital in the short run, T-bills offer safety and liquidity backed by the U.S. government.

The Bottom Line

CDs and Treasury bills both offer low-risk ways to preserve capital and earn predictable returns, but they serve different financial needs. CDs may be better suited for savers who want fixed, regular interest payments and don't need immediate access to their money. T-bills, on the other hand, provide more flexibility and tax advantages, especially for short-term investors.

Understanding your time horizon, liquidity needs and tax situation can help you decide which option aligns best with your goals. No matter which you choose, both can play a valuable role in a well-rounded savings or investment strategy.