4-Week Treasury Bills vs High-Yield Savings: The State Tax Exemption

How US Treasury Bills compare with a high-yield savings account once state and local tax is counted, how T-Bills are priced and bought, and how a rolling ladder keeps cash maturing every few weeks.

Why T-Bills Can Beat a Savings Account After Tax

Both a High-Yield Savings Account (HYSA) and a Treasury Bill pay interest, but the tax treatment differs. According to TreasuryDirect, federal tax is due on T-Bill interest, with no state or local taxes. Interest on bank deposits is generally taxed by your state as well, which matters most in high-tax states.

So the fair comparison is after tax: a T-Bill yield slightly below a savings rate can still leave you with more money, depending on your state tax rate.

How Treasury Bills Work: Discount Pricing

Unlike bank deposits that credit interest periodically, Treasury Bills are short-term securities sold at a discount or at par, with terms of 4, 6, 8, 13, 17, 26 and 52 weeks (TreasuryDirect). The difference between what you pay and the face value you receive at maturity is your interest.

Auctions are weekly for 4, 6, 8, 13, 17 and 26-week bills, and every four weeks for 52-week bills.

Illustration: if you pay $9,960 for a $10,000 bill, the $40 you receive at maturity above your purchase price is your interest. The actual price depends on the auction result.

Treasury interest is reported to you for your tax return; check that your tax software does not include it in state taxable income.

Where to Buy: TreasuryDirect vs. a Brokerage

Channel 1: TreasuryDirect.gov, run by the Treasury's Bureau of the Fiscal Service. Bills are held in electronic form, with a $100 minimum and $100 increments, and you can choose to reinvest a maturing bill in the same type of security.

Channel 2: A brokerage account. Many brokerages let you buy new-issue bills at auction and offer automatic reinvestment; you may also be able to sell a bill before maturity at the market price, which can be above or below what you paid. Check your brokerage's fees and terms.

Which is better depends on whether you value holding directly with the Treasury or keeping everything in one brokerage account with the option to sell early.

The 4-Week Auto-Rolling Liquidity Ladder: Continuous Cash Flow

A common concern with T-Bills is locking up liquidity. To maintain seamless, uninterrupted liquidity for emergency reserves, deploy a '4-Week Rolling T-Bill Ladder':

Structure: Divide your cash reserve (e.g., $40,000) into 4 equal tranches of $10,000 each.

Execution Schedule: Week 1: Purchase a 4-week T-Bill for $10,000 with Auto-Roll enabled. Week 2: Purchase a second 4-week T-Bill for $10,000. Week 3: Purchase a third 4-week T-Bill for $10,000. Week 4: Purchase the fourth 4-week T-Bill for $10,000.

Outcome: from Week 5, one bill matures each week. If you need cash, turn off reinvestment for that week's bill and the proceeds are paid out; if not, it is reinvested in a new bill at the next auction's rate.

This keeps a quarter of the ladder maturing every week, with the interest free of state and local tax. Note that money is only available when a bill matures, unless you sell it early through a brokerage at the market price.

Five-Step Action Plan to Implement a Treasury Bill Cash Strategy

1. Calculate Your State Tax Drag: Review your state marginal income tax rate (e.g., NY, CA, NJ, MA, IL) to calculate your personalized Tax-Equivalent Yield.

2. Compare Live Treasury Yields to HYSA Rates: Check recent 4-week and 13-week T-Bill auction results on TreasuryDirect against current savings rates, after state tax.

3. Choose Where to Buy: Open a TreasuryDirect account or use your brokerage's Treasury auction or fixed-income section.

4. Place Non-Competitive Auction Orders: Select the bill term you want and choose reinvestment at maturity if you want the ladder to roll.

5. Maintain a Small Checking Cash Buffer: Keep 1 to 2 months of operational living expenses in your primary checking account while routing all core reserves into your rolling T-Bill ladder.

6. Check Your Tax Forms at Year-End: Confirm that your tax software excludes Treasury interest from your state tax return.

Summary: When T-Bills Make Sense for Cash

For cash you will not need before the bills mature, Treasury Bills can pay more than a savings account after state and local tax, especially in high-tax states. Compare the after-tax figures with current rates, keep day-to-day money in an insured bank account, and remember that a T-Bill is only paid out at maturity unless you sell it at the market price.

Related reading

• HYSA compound annual percentage yield - Compare baseline HYSA yields against sovereign Treasury debt instruments.
• How to Build a CD Ladder - Build a Certificate of Deposit (CD) ladder so that part of your cash matures at regular intervals.
• Emergency Fund Architecture: 3-6 Month Cash Buffer (2026) - Learn how to calculate and structure an institutional emergency fund.