The average federal refund this season was $3,571 through March 20, up $350 from the same point last year, according to IRS figures reported by Fox Business. If that money is earmarked for something 12 to 24 months out, you have a real choice to make, and the T-bills vs CDs question has a different answer depending on which state taxes your paycheck. A Treasury bill yielding 3.67% can pay you more than a CD yielding 4.10%. It can also lose to it. The deciding factor is a line on your state return, and the shortcut most people use to account for it gets the answer wrong.
Where short-term rates sat after the Fed’s March meeting
On March 18, the Federal Reserve held the federal funds target range at 3.50% to 3.75%, with one member, Stephen Miran, dissenting in favor of a quarter-point cut. Short-term Treasury yields sit right on top of that range. On March 31, the Treasury’s daily bill rates showed the 52-week bill at a 3.67% coupon-equivalent yield and the 26-week bill at 3.72%. The 2-year Treasury note closed the month at 3.79%.
Bank rates are all over the place. Capital One’s rate changes on March 24 put its 360 Performance Savings account at 3.20% APY, its 11-month CD at 4.10%, its 12-month CD at 3.75% and its 24-month CD at 3.50%. Those are good high-yield savings and CD rates. The typical bank account pays a fraction of that: the FDIC’s March 2026 national rates put the average savings account at 0.39% and the average 12-month CD at 1.52%.
That gap is bigger than any other number in this post. On a $3,571 refund, the national average savings rate earns about $13.93 in a year before tax. Capital One’s savings rate earns $114.27 on the same money, more than 8 times as much, and opening the account takes an afternoon.
Read the T-bill quote the bank way
Before comparing anything, make sure you’re looking at the right T-bill number. Bills are sold at a discount and mature at face value, and the Treasury publishes two yields for each one. The “bank discount” rate on the 52-week bill was 3.53% on March 31. The “coupon equivalent” was 3.67%. The discount rate is calculated on the face value and a 360-day year, which makes it look smaller than what you actually earn.
Here’s the arithmetic. A 3.53% discount on a 364-day bill means you pay about $96.43 for every $100 of face value. Getting $100 back after 364 days is a 3.70% gain on the money you put in. The coupon-equivalent 3.67% is the closer match to a bank APY, and I use it for everything below because it’s slightly conservative. If you compare a bank’s APY to a T-bill’s discount rate, you’ve handed the bank about 0.14 points it didn’t earn.
The tax-equivalent yield formula most comparisons get wrong
Interest from Treasury bills is taxed by the IRS but exempt from state and local income tax. Interest from a savings account or CD is taxed by both. That’s the whole reason this comparison changes by state.
The common shortcut divides the T-bill yield by one minus your state tax rate. For someone in California’s 9.3% bracket, that turns a 3.67% bill into a 4.05% taxable equivalent. By that math, Capital One’s 4.10% CD wins.
The shortcut ignores your federal bracket. You pay federal tax on both, so the federal bite comes off the T-bill too, and the state exemption is worth more as a share of what’s left. The correct version is the T-bill yield times (1 minus your federal rate), divided by (1 minus your federal rate minus your state rate). With a 22% federal bracket and a 9.3% state rate, that’s 3.67% times 0.78, divided by 0.687, which comes to 4.17%. A taxable account would need to pay more than 4.17% to beat the bill, so the 4.10% CD loses. Same inputs, opposite answer. (This treats your state tax as not deductible on your federal return. If you itemize and deduct state income tax, the bill’s edge shrinks a bit.)
A $3,571 refund in California vs Texas
Take a hypothetical single filer with about $90,000 of taxable income. Under the 2026 federal brackets, that’s the 22% rate, which runs from $50,400 to $105,700. Put one version of this person in California, where the 2025 rate schedule charges 9.3% on single filers’ income from $72,724 to $371,479. Put the other in Texas, which has no state income tax. Each has the average refund of $3,571 to park for about a year.
| Option (rate) | After-tax yield, Texas | After-tax dollars, Texas | After-tax yield, California | After-tax dollars, California |
|---|---|---|---|---|
| Capital One 360 savings (3.20%) | 2.50% | $89.13 | 2.20% | $78.50 |
| Capital One 11-month CD (4.10%) | 3.20% | $114.20 | 2.82% | $100.58 |
| 52-week T-bill (3.67%) | 2.86% | $102.22 | 2.86% | $102.22 |
The T-bill row is identical in both states because the state never touches it: 3.67% minus 22% federal tax leaves 2.86%, or $102.22 on $3,571. The CD in Texas keeps 78% of 4.10%, which is 3.20%, or $114.20. In California the CD keeps only 68.7%, which is 2.82%, or $100.58. (The CD dollars are annualized for comparison; an 11-month term pays a little less in calendar terms.)
So the Texan should take the CD and come out about $12 ahead of the bill. The Californian should take the bill and come out ahead by $1.64. I’d call that last result a tie, and I’d still pick the bill, because it’s the one you can sell before maturity without paying an early-withdrawal penalty. The savings account loses in both states, but it’s the only one of the three you can tap any day at full value.
For money you need in two years, the 2-year note wins
If the refund is for something further out, like a car down payment in spring 2028, the math stops being close. The 2-year Treasury at 3.79% keeps 2.96% after federal tax in both states, about $105.57 a year on $3,571. Capital One’s 24-month CD at 3.50% keeps $97.49 a year in Texas and $85.86 in California. In California, the 2-year note works out to a 4.30% taxable equivalent, which is 0.80 points above Capital One’s 24-month CD rate.
You can buy bills and notes at auction through TreasuryDirect or a brokerage account, and if there’s any chance you’ll need the cash early, use the brokerage, because selling from there is simpler. A Treasury sold before maturity goes at the market price, which can be a little above or below what you paid. Rolling 26-week bills instead of holding one 52-week bill bumps the yield slightly (3.72%, a 4.23% taxable equivalent in California), but you’re betting on where rates will be in September. The Fed’s March dissent leaned toward cuts, and if they come, the second 26-week bill pays less.
If this refund is really your emergency cushion rather than money with a target date, it’s a different job, and keeping it fully liquid matters more than the last half point. And if the refund was bigger than you expected, it may be worth checking whether you missed any of these commonly overlooked deductions before you file next year.
The bottom line on T-bills vs CDs
In a no-income-tax state, a top online CD can beat a T-bill on yield, and the state exemption is worth nothing to you. In a high-tax state, run the full formula with your federal rate included before you trust any comparison, because the shortcut understated the bill’s value by 0.12 points here and picked the wrong winner. Either way, the difference between the best two options on a $3,571 refund is somewhere between $2 and $12 a year. The difference between either of them and a 0.39% account is $91 to $103 after tax. Get the money out of the low-rate account first, then settle the T-bills vs CDs question with your own tax brackets. Tax treatment depends on your full situation, so a tax professional can confirm how the numbers work for you.
Sources: Fox Business, U.S. Treasury, FDIC
