Certificates of Deposit Are Now More Attractive than US Treasurys Across All Maturities for All Tax Brackets
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Certificates of Deposit Are Now More Attractive than US Treasurys Across All Maturities for All Tax Brackets

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Author: Ari Socolow on November 21, 2023

Interest rate moves over the last 23 months have been so pronounced that most banks - including online banks - have struggled to offer their customers certificate of deposit rates that compete with what those same customers can get in US Treasury markets.   This has been especially true for those higher earners who live in cities like New York, Boston, Chicago, San Francisco and Los Angeles who benefit from the state and local tax exclusions that apply to interest from US Treasurys or certain federal agencies, like Federal Home Loan Bank (FHLB) and Federal Farm Credit Bank (FFCB).   (Residents of Washington State, Florida, Texas or other states without state income tax, or those with low state income tax rates, cross the threshold where CDs are more attractive more quickly).

US Treasury markets have leveled off and banks have become more competitive. Earlier this year there was a period when one-year CDs were more attractive than one-year Treasuries to even those who benefit greatly from the state and local tax exclusions on Treasurys.  Now, those same people will find that fully taxable CDs offer them a higher after tax yield than Treasurys across virtually all maturities.  

As of this writing, these are the highest nationally available CD rates:

9-month CD @ 5.75%

12-month CD @ 5.67%

18-month CD @ 5.80%

24-month CD @ 5.50%

48-month CD @ 5.20%

60-month CD @ 5.25%

You also may find higher rates locally at branch banks by checking BestCashCow's local CD tables, or a completing site like RatesAndInfo.

Even if you are one of the fortunate or unfortunate people to be paying the top local tax rates in the country (which seldom pierce 10%), you are going to earn more in CDs right now.  

US Treasury and US agency instruments may still make sense for some depositors who may require greater liquidity, but their rates, even after accounting for the tax benefits, may be less competitive with CDs moving forward.

Bottom line: The "I can do better in Treasurys" cocktail chatter has run its course.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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