What is the best investment right now?

What is the best investment right now?

If you’re looking for a safe investment, certificates of deposit (CDs) and treasury bills are popular options. Most banks and credit unions offer CDs. These allow you to lock in a fixed interest rate and term, such as 5% for 12 months.

Treasury bills, also known as treasury bonds, are sold at auction. They work just like CDs in that you buy them at a fixed interest rate and a fixed term. Terms range from four to 52 weeks. To help you decide which is the better investment, here are the latest rates from the major CD and Treasury bond auctions, as well as their other key differences.

CD rates vs. Treasury bond rates

The table below compares recent CD and T-bill ratios side by side. The CD rates were the best I found after reviewing dozens of high yield CD options. Treasury bond rates are from auctions within the last two weeks at the time of writing (issue dates range from January 1 to February 8, 2024).

Deadline

CD rate

Treasury bill rate

One Month (CD) / Four Weeks (Treasury Bill)

5.40%

5.390%

Three months (CD)/13 weeks (treasury bill)

5.35%

5.394%

Six months

5.28%

5.263%

A year

5.35%

4.814%

Data sources: Raisin, First Internet Bank and TreasuryDirect.

As you can see, there isn’t much difference between shorter CD rates and T-bills right now. But if you want a 1-year tenure, then you’re better off with a CD.

CD rates versus T grade rates

While Treasury bills have a maximum maturity of 52 weeks, there are other types of longer-term Treasury securities available. Treasury bills have terms from two to 10 years. Treasury bonds have a term of 20 or 30 years. CD terms typically lock in 10 years, so if you want a fixed income investment for longer than that, you’ll have to go with Treasury bills.

Here’s how CD rates currently compare to T-note rates. Note rates are from notes issued between January 16 and January 31, 2024.

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Deadline

CD rate

T grade rate

Two years

5.00%

4.365%

Three years

5.05%

4.105%

Five years

5.10%

4.055%

10 years

4.00%

4.024%

Data sources: Vanguard, Apple Federal Credit Union and TreasuryDirect.

If you are looking for a term of two to five years, you can earn more from a CD. And it can be a significant difference.

Differences between investing in CDs and Treasury bonds

Treasury bills have one major advantage over CDs: they are exempt from state income taxes. The same is true with Treasury bills and Treasury bonds.

If you live in a state with income taxes and the rates are similar for CDs and T-bills, then it makes sense to go with a T-bill. The amount you save in taxes will likely result in a higher payout from a T-bill than a CD.

Another benefit of Treasury bills is their liquidity. You can buy and sell them on a secondary market. You can’t do this with a CD bought from a bank — you’ll have to break the CD and pay an early withdrawal penalty to get your money. There are brokered CDs issued by stock brokers, and these can be bought and sold in a secondary market. These may also be worth considering if you want a more flexible CD option.

Choosing between a CD and Treasures depends on how long you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the best choice. For a period of one to five years, CDs are currently paying more, and it’s a big enough difference to give them the edge.

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