Start with when you need the money
Money for an unexpected repair has a different job from money intended for retirement. Before comparing interest rates, ask:
Liquidity means how easily you can turn an asset into usable money. Savings accounts generally offer easier access than products with a maturity date, although transfer times and account restrictions still matter.
Compare the choices
| Choice | How it works | Access to money | What to watch |
|---|---|---|---|
| Savings account | A bank deposit that earns interest; its rate can change | Generally accessible, subject to bank terms and transfer timing | Fees, minimum balances, promotional conditions, changing rates |
| Bank CD | A deposit held for a stated term; many offer a fixed rate | Early withdrawal usually carries a penalty | Maturity date, renewal terms, and whether the rate is fixed |
| Treasury bill | Short-term U.S. government debt, generally bought below face value and repaid at face value | Hold to maturity or arrange an early sale | Early-sale price and operational restrictions |
| Treasury note or bond | Longer-term U.S. government debt paying interest every six months | Hold to maturity or sell at the market price | Greater price sensitivity to interest rates, especially at longer maturities |
CD terms vary. A brokered CD can work differently from a CD purchased directly from a bank; access may require selling it at a loss rather than paying a standard withdrawal penalty.
Treasury bills have regular terms ranging from 4 to 52 weeks. Notes mature in 2, 3, 5, 7, or 10 years; Treasury bonds mature in 20 or 30 years. Notes and bonds pay fixed interest every six months.
Understand the protection
At an FDIC-insured bank, eligible deposits—including savings accounts and CDs—are insured up to $250,000 per depositor, per insured bank, per ownership category. Multiple accounts in the same category at one bank are combined when determining coverage. Opening another savings account there does not automatically create another $250,000 of protection.
Treasury securities are federal government obligations, rather than FDIC-insured bank deposits. Their market prices can still change before maturity. A Treasury ETF is an investment fund; it should not be treated as an insured savings account.
Read interest rates correctly
The interest rate is the stated rate used to calculate interest. APY, or annual percentage yield, accounts for compounding—earning interest on previously earned interest.
APY is an annualized measure. A six-month CD advertising 4% APY does not pay 4% over six months. For variable-rate savings, the advertised APY also does not promise that the rate will remain unchanged for a year.
For bonds, the coupon rate determines interest payments relative to face value. Yield also reflects the price paid and, depending on the yield measure, repayment at maturity. A higher coupon alone does not establish which bond offers the better return.
Compare dollars and access
Taylor has $2,000 and compares three hypothetical choices. These are teaching numbers, not current offers.
Choice A: Savings at 4% APY
If the APY remains unchanged for a full year, with no deposits, withdrawals, or fees:
$2,000 × 1.04 = $2,080
Interest earned: $80 before taxes.
A $5 monthly fee would total $60 a year, substantially reducing the benefit. Always compare fees alongside yield.
Choice B: A six-month CD at 4% APY
Using a simplified half-year calculation:
$2,000 × (1.040.5 − 1) ≈ $39.61 interest
The balance would be approximately $2,039.61 at maturity, before taxes. Actual results depend on the precise term and product terms. An early-withdrawal penalty could reduce the earnings.
Choice C: A Treasury bill
Suppose Taylor pays $1,980 for a bill that pays $2,000 at maturity.
Interest earned: $2,000 − $1,980 = $20.
The holding-period return is $20 ÷ $1,980 ≈ 1.01%. That is the return for the bill’s holding period—not automatically an annual yield. The time to maturity is needed to compare it with an annual rate.
Access matters as much as the rate
Selling a Treasury before maturity can produce a gain or loss. TreasuryDirect does not directly execute early sales: securities must first be transferred to a bank, broker, or dealer. Newly purchased marketable securities generally have a 45-day TreasuryDirect holding period before transfer or sale, so a four-week bill matures before it can be transferred.
For an expense due soon, consider the withdrawal process, maturity date, settlement, and transfer time—not just whether a product is described as “liquid.”
Costs and risks to understand
- Inflation: Interest may not keep up with rising prices.
- Changing rates: Savings rates can fall. When a CD or bill matures, replacement choices may pay less.
- Early-access costs: CD penalties or investment losses can outweigh extra interest.
- Interest-rate risk: Existing fixed-rate bond prices generally fall when market rates rise. Longer maturities usually increase this sensitivity.
- Fees and taxes: Account charges, brokerage costs, and taxes can reduce what you keep.
Interest on Treasury bills, notes, and bonds is generally subject to federal income tax and exempt from state and local income taxes. Compare after-tax outcomes as well as quoted yields.
Practice before using real money
Choose an imaginary expense due in six months. Compare one savings account, one CD, and one Treasury bill. Record the rate type, expected dollar earnings, fees, protection, and earliest date the money would be usable.
Check your understanding
- Does 4% APY on a six-month CD mean earning 4% during those six months?
- Are two individually owned savings accounts at the same bank automatically insured for $250,000 each?
- Can selling a Treasury before maturity produce a loss?
- What should you compare besides the advertised rate?
Reveal the answers
- No. APY is annualized; six-month earnings would be roughly half that percentage.
- No. Deposits in the same ownership category at the same bank are combined.
- Yes. The market price may be below the purchase price.
- Access timing, fees, penalties, rate conditions, insurance or backing, taxes, and inflation.