HYSA vs T-bills 2026: the APY that ties a 4.33% bill
A 26-week Treasury bill quoted at 4.33% skips state income tax. At 24% federal and 5% state tax, a savings account needs 4.69% to keep up.
On this page 6 sections
A Treasury bill's interest is taxed by the federal government but not by any state or city, so a bill pays more after tax than a savings account quoting the same rate wherever there is a state income tax. With the 26-week bill at 4.33% on October 9, 2026, a saver in the 24% federal bracket needs a savings APY of 4.38% with no state income tax, 4.69% at a 5% state rate and 5.28% at 13% to keep the same amount.
That gap is the whole question. Two accounts can advertise nearly the same number and leave different amounts in your pocket in April, because one of them is taxed twice and the other once. On $25,000 held for a year, a 4.00% savings account keeps $710 after 24% federal and 5% state tax; the bill keeps $832.
The numbers
Every figure below comes from the MoneyVibe HYSA vs T-bill after-tax calculator, using its engine with these inputs: $25,000 of cash, held one year; a savings account or CD at 4.00% APY (an example, not a quoted bank rate); the Treasury's 26-week bill at a 4.33% coupon-equivalent yield, the figure for Friday, October 9, 2026, the most recent day published when this was written on October 12; and a 24% federal bracket. The calculator opens at an earlier Treasury figure (4.37% for September 29, 2026), so enter 4.33% to reproduce these numbers, or the day's yield to run your own. It turns the bill's 4.33% quote into an annual rate of 4.38% by compounding it twice a year, as a bill rolled over every 26 weeks would earn, then taxes it federally only. The savings interest is taxed at the federal and state rates added together.
| State income tax rate on interest | Savings APY needed to tie the bill | 4.00% savings account, kept after tax | 4.33% T-bill, kept after tax | T-bill ahead by, one year on $25,000 |
|---|---|---|---|---|
| 0% (no state income tax) | 4.38% | $760 | $832 | $72 |
| 3% | 4.56% | $730 | $832 | $102 |
| 5% | 4.69% | $710 | $832 | $122 |
| 7% | 4.82% | $690 | $832 | $142 |
| 9% | 4.96% | $670 | $832 | $162 |
| 13% | 5.28% | $630 | $832 | $202 |
The bill's column never changes, because no state touches it. The savings column falls by $10 for every point of state tax ($25,000 x 4.00% x 1%), and the APY needed to tie climbs with it. Even with no state income tax at all, the account must pay 4.38%, not 4.33%, because the bill's quote is converted to an annual rate before the two are compared.
Your federal bracket moves the tie point much less than your state rate does. The table below is the same engine run at five federal brackets and four state rates; each cell is the savings APY that ties a 4.33% bill.
| Federal bracket | No state tax | 5% state | 9% state | 13% state |
|---|---|---|---|---|
| 12% | 4.38% | 4.64% | 4.88% | 5.14% |
| 22% | 4.38% | 4.68% | 4.95% | 5.25% |
| 24% | 4.38% | 4.69% | 4.96% | 5.28% |
| 32% | 4.38% | 4.72% | 5.04% | 5.41% |
| 35% | 4.38% | 4.74% | 5.08% | 5.47% |
The state rate does the work: going from no state tax to 13% raises the tie point by 0.76 to 1.09 points, while going from the 12% to the 35% federal bracket raises it by about a third of a point at most. A higher federal bracket matters only because it shrinks what is left for the state to take from, which makes each point of state tax a larger share of the remainder.
Why it works this way
The rule is in federal law. Section 3124(a) of title 31 of the U.S. Code says that "Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State," and the exemption "applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax." The two exceptions are a nondiscriminatory franchise tax (or a nonproperty tax in its place) imposed on corporations, and estate or inheritance taxes. That covers cities and counties too, so local income taxes on interest do not reach Treasury bills either. TreasuryDirect's page on bills sums it up in two lines under Taxes: "Federal tax due on interest earned" and "No state or local taxes."
The IRS side is in Publication 550 (2025): interest on Treasury bills, notes and bonds "is subject to federal income tax but is exempt from all state and local income taxes," it is reported in box 3 of Form 1099-INT, and for a bill the interest is the difference between the discounted price paid and the face value received, generally reported when the bill is paid at maturity. Interest on a bank savings account, money market deposit account or CD has no such exemption, so it is taxed at both levels.
The yield needs one more step. Treasury publishes two numbers for each bill each day: a bank discount rate (4.18% for the 26-week bill on October 9) and a coupon-equivalent yield (4.33%). The discount rate is figured on face value over a 360-day year, as TreasuryDirect's pricing formula shows, so it understates the return; the coupon-equivalent figure is the one to compare with a deposit, and the calculator then states it as an annual rate so that it lines up with an APY.
The tie point follows from the after-tax rates: the bill's annual rate times (1 minus the federal rate), divided by (1 minus the federal and state rates). At 24% federal and 5% state that is 4.38% x 0.76 / 0.71, or 4.69%.
What changes the answer
- The rate your savings account actually pays. The FDIC's national average savings rate, for the $2,500 balance tier, was 0.37% in its September 2026 table (dated September 21, 2026). At that rate $25,000 keeps $66 a year after 24% federal and 5% state tax, against $832 for the bill. Moving off a 0.37% account is worth far more than the choice between a high-yield account and a bill. At 4.50% the account keeps $799 and the bill is ahead by $33; at 4.75% the account is ahead by $12.
- Your state rate, and whether you itemize. The calculator uses the state rate you enter and does not treat state tax as deductible. If you itemize and your state and local taxes stay under the federal cap, each dollar of state tax on savings interest also lowers your federal tax, so the bill's edge is somewhat smaller than shown. Use the rate your state charges on your last dollar of income, and add any city income tax.
- The amount. The edge scales with the balance. On $100,000 at 24% federal and 5% state with a 4.00% account, the bill keeps $486 more in a year; on $5,000 it is about $24, which may not be worth a brokerage or TreasuryDirect account.
- What the next bill pays. A 26-week bill locks its rate only until it matures. On October 9 the 13-week bill was quoted at 4.16% and the 52-week at 4.46%. Rolling 26-week bills for longer assumes each new bill pays the same, which nobody can promise; a 52-week bill (4.46% on October 9) fixes the rate for a full year instead, and a savings rate can change at any time.
What to do first
- Set aside the cash you may need on a day's notice: the emergency fund calculator sizes that part, which usually belongs in an account you can empty at par. For the rest, find your two real rates: your savings account's current APY (on the bank's site or statement) and the day's 26-week coupon-equivalent yield from the Treasury's Daily Treasury Bill Rates page.
- Look up the state income tax rate on your top dollar of income, plus any city rate, and your federal bracket in the tax bracket calculator.
- Enter them in the HYSA vs T-bill after-tax calculator. It returns the dollars each option keeps, the APY that ties the bill, and the break-even at seven state rates.
To keep the break-even rows for your own rates as a chart, ChartGenie can draw one from the table.
If you buy at auction, the price per $100 comes from the discount rate rather than the yield. TreasuryDirect's pricing page gives the formula; to see the price for your own face amount and term, the MakeMyCalculator studio can build a one-off calculator from that formula, which the MoneyVibe tool does not compute.
What this does not model
The 3.8% Net Investment Income Tax at higher incomes (it applies to both kinds of interest, so it trims the bill's dollar lead a little, though the APY needed to tie rises slightly), the federal deduction for state taxes if you itemize, the year in which bill interest is reported, money market funds and ETFs that hold Treasuries (states treat their dividends differently), Treasury notes and bonds, early sale of a bill at a market price, and rates that change after purchase. Safety is not priced: the FDIC insures deposits to at least $250,000 per depositor, per ownership category, at each insured bank, and Treasury bills are obligations of the U.S. government.
Common questions
Is T-bill interest taxed by my state?
No. Under 31 U.S.C. 3124 and IRS Publication 550, interest on Treasury bills is exempt from state and local income tax but taxed federally as ordinary income. On $25,000 in a 4.33% bill, that exemption saves about $55 of state tax in the first year at a 5% state rate.
What savings rate beats a 4.33% T-bill?
At 24% federal tax, a savings account must pay more than 4.38% with no state income tax, 4.69% at a 5% state rate, 4.96% at 9% and 5.28% at 13%, using the 26-week bill's yield for October 9, 2026.
Is a T-bill better than a high-yield savings account in a state with no income tax?
Only if it pays more after converting the bill's quote to an annual rate. A 4.33% bill earns 4.38% a year, so at 24% federal tax a savings account at 4.00% trails it by $72 on $25,000, while one paying more than 4.38% comes out ahead.
Why is the T-bill rate different on different sites?
Treasury publishes a bank discount rate and a coupon-equivalent yield for each bill; on October 9, 2026 the 26-week bill showed 4.18% and 4.33%. Compare the coupon-equivalent figure, converted to an annual rate (4.38%), with a savings account's APY.
Next steps: run your own rates in the HYSA vs T-bill after-tax calculator, read the library chapter where to keep savings, or see the glossary entries for the Treasury bill, the high-yield savings account and APY.
Not tax or legal advice. Treasury bill yields from the Treasury's Daily Treasury Bill Rates for October 9, 2026; federal law and IRS guidance as read on October 12, 2026; rates change daily, so confirm today's figures before acting.