Is a 4% Savings Account Really Better Than a T-Bill? After-Tax Returns for NJ and NY Residents in 2026

If you live in the United States, a high-yield savings account can look extremely attractive when interest rates are relatively high.

Seeing a savings account offering around 4% APY naturally raises the question:

“If I can earn around 4% while keeping my money in something that feels almost like a regular bank account, isn’t that good enough?”

For many people, it may be.

But if you live in New Jersey or New York, there is another factor that can materially change the comparison:

Taxes.

Interest earned from a bank savings account, money market deposit account, or certificate of deposit is generally subject to federal income tax.

For residents of New Jersey and New York, ordinary bank interest is generally also included in state taxable income.

U.S. Treasury Bills, or T-Bills, work differently.

Interest from U.S. Treasury bills, notes, and bonds is subject to federal income tax, but it is exempt from state and local income taxes. The IRS specifically describes Treasury securities as direct obligations of the U.S. government whose interest is exempt from state and local income tax. citeturn716043search0turn138689search3

That difference can be surprisingly important—especially for people living in New Jersey, New York State, and particularly New York City.

A savings account can have the higher headline yield while a T-Bill leaves you with more money after taxes.

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The Bottom Line First: A 4% Savings Account Is Not Automatically Better

Let’s start with a simplified example.

Assume:

• High-Yield Savings Account: 4.00% APY
• Comparable annualized T-Bill yield: 3.70%
• Federal marginal income-tax rate: 24%

For illustration, let’s also assume:

• New Jersey marginal rate: 6.37%
• New York State marginal rate: 6.85%
• New York City resident rate, where applicable: 3.876%

These state and local rates are examples, not universal rates. Actual marginal rates depend on income, filing status, and other circumstances.

Under this simplified model:

Investment	Headline Yield	Federal Tax	State / Local Tax	Approx. After-Tax Yield
HYSA — New Jersey	4.00%	Taxable	Taxable	2.79%
HYSA — New York State	4.00%	Taxable	Taxable	2.77%
HYSA — New York City	4.00%	Taxable	NY + NYC taxable	2.61%
T-Bill — New Jersey	3.70%	Taxable	Exempt	2.81%
T-Bill — New York State	3.70%	Taxable	Exempt	2.81%
T-Bill — New York City	3.70%	Taxable	Exempt	2.81%

So on the surface:

Savings: 4.00%

versus:

T-Bill: 3.70%

looks like an easy win for the savings account.

But after accounting for the assumed state and local taxes, the T-Bill can actually come out ahead.

That is the key idea behind this article.

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One Very Important Warning: Savings APY and T-Bill Quotes Are Not Always Apples-to-Apples

Before comparing rates, there is an important technical issue.

A bank’s APY, or Annual Percentage Yield, generally incorporates the effect of compounding.

Treasury Bill rates shown in financial data sources may be calculated differently.

For example, the Federal Reserve’s H.15 release publishes Treasury Bill secondary-market rates on a discount basis.

That means this comparison:

Savings APY: 4.00%

versus

H.15 T-Bill rate: 3.70%

is not necessarily a perfect apples-to-apples comparison.

When deciding whether to buy an actual T-Bill, it is better to look at a yield measure that more closely reflects your investment return based on the price you pay and the amount you receive at maturity.

Brokerage platforms may display an investment yield, yield to maturity, or another annualized return measure.

Treasury auction results also provide pricing and rate information.

For that reason, the 3.70% T-Bill yield used throughout this article is an illustrative comparable annualized yield, not a claim that every T-Bill currently yields exactly 3.70%.

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Why T-Bills Can Be More Attractive in New Jersey and New York

The tax treatment is the main reason.

Ordinary bank interest is generally subject to:

Federal income tax + state income tax

For New York City residents, there may also be:

New York City personal income tax

Treasury interest is different:

Federal income tax: Taxable

State income tax: Exempt

Local income tax: Exempt

IRS Publication 550 confirms that interest from Treasury bills, notes, and bonds is subject to federal income tax but exempt from all state and local income taxes. citeturn716043search0

The higher your state and local marginal tax rates are, the more valuable that exemption can become.

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How Does New Jersey Treat Treasury Interest?

New Jersey specifically exempts interest from direct federal obligations such as:

• U.S. Treasury Bills
• U.S. Treasury Notes
• U.S. Treasury Bonds
• U.S. Savings Bonds

The New Jersey Division of Taxation states that interest and capital gains from direct federal obligations such as U.S. Treasury securities are not subject to New Jersey Gross Income Tax. citeturn716043search1

Ordinary bank savings interest, on the other hand, is generally taxable in New Jersey.

That means a New Jersey resident should not simply compare:

Savings: 4.00%

with:

T-Bill: 3.70%

and stop there.

The state-tax exemption needs to be part of the calculation.

This also matters when preparing your tax return.

Treasury interest may appear on federal tax documents, but the New Jersey return needs to reflect the appropriate state exemption.

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How Does New York Treat Treasury Interest?

New York follows a similar principle.

Treasury interest may be included in federal adjusted gross income, but qualifying U.S. government obligation interest is subtracted when calculating New York taxable income.

New York’s resident return instructions specifically provide a subtraction for interest income on U.S. government bonds and other qualifying U.S. government obligations. citeturn951354search0

So the basic result is:

Federal: Taxable

New York State: Exempt

That can create a meaningful difference between a bank savings account and a Treasury Bill.

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New York City Residents Can Have an Even Bigger T-Bill Advantage

For someone living in New York City, the calculation can become even more interesting.

New York City residents generally pay NYC personal income tax in addition to New York State income tax.

At higher taxable-income levels, the NYC marginal rate can reach 3.876% under the applicable rate schedule. citeturn580465search0

Treasury interest is exempt from state and local income tax.

That means a NYC resident may avoid both:

• New York State tax
• New York City tax

on qualifying Treasury interest.

Using our simplified example:

Federal marginal rate: 24%

NY State marginal rate: 6.85%

NYC marginal rate: 3.876%

A 4.00% savings yield would have a simplified after-tax return of approximately:

4.00% × (1 − 24% − 6.85% − 3.876%)

= approximately 2.61%

A 3.70% T-Bill would instead be:

3.70% × (1 − 24%)

= approximately 2.81%

That is a meaningful difference.

This is why someone keeping a substantial amount of cash in Manhattan, Brooklyn, Queens, the Bronx, or Staten Island may want to compare T-Bills with high-yield savings on an after-tax basis, not just by looking at the advertised interest rate.

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What T-Bill Yield Is Equivalent to a 4.00% Savings Account?

This is where the comparison becomes especially useful.

Assuming a 24% federal marginal tax rate, we can estimate the T-Bill yield required to produce roughly the same after-tax return as a 4.00% savings account.

Residence	Assumed State / Local Marginal Rate	T-Bill Yield Roughly Equivalent to a 4.00% Savings Account
New Jersey	6.37%	about 3.66%
New York State	6.85%	about 3.64%
New York City	6.85% NY + 3.876% NYC	about 3.44%

For New Jersey, for example:

Savings after-tax yield

4.00% × (1 − 24% − 6.37%)

= approximately 2.79%

To earn the same amount from a Treasury Bill:

T-Bill yield × (1 − 24%)

= approximately 2.79%

Solving for the T-Bill yield gives approximately:

3.66%

So a New Jersey resident in this simplified example could potentially be indifferent between:

4.00% bank savings

and roughly:

3.66% T-Bill

before considering liquidity and other differences.

For a New York City resident, the break-even T-Bill yield falls even further, to approximately 3.44% under our assumptions.

That is the power of the state and local tax exemption.

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This Is Only a Simplified Tax Model

This is extremely important.

The calculations above are designed to explain the concept.

They are not a simulation of an actual tax return.

Your real after-tax yield may be affected by:

• Filing status
• Taxable income
• Federal marginal tax rate
• New Jersey or New York marginal tax rate
• New York City residency
• Itemized deductions
• Federal treatment of state and local tax deductions
• Net Investment Income Tax
• Other income and deductions

For example, investment interest can potentially be included in net investment income for purposes of the 3.8% Net Investment Income Tax, depending on the taxpayer’s MAGI and other circumstances. The NIIT generally applies to the lesser of net investment income or MAGI above the applicable statutory threshold. citeturn477842search3

Treasury interest does not escape NIIT merely because it is exempt from state income tax.

Savings interest and Treasury interest can both potentially be part of net investment income for federal NIIT purposes.

Similarly, whether state income taxes generate a federal itemized-deduction benefit depends on the taxpayer’s circumstances and applicable federal rules.

So simply adding federal and state marginal rates together is intentionally a simplified comparison tool.

The main point is not that everyone will earn exactly 2.79% or 2.81%.

The main point is:

A T-Bill can have a lower headline yield than a savings account and still produce a higher after-tax return because Treasury interest is exempt from state and local income tax.

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What Were T-Bill Rates Around the Summer of 2026?

Treasury rates change every day, so it is important to use current data when making an actual decision.

Federal Reserve H.15 data from late July 2026 showed Treasury Bill secondary-market rates generally in the mid-to-upper 3% range.

For example, around July 30, the reported secondary-market rates were approximately:

• 4-week T-Bill: around 3.6%
• 3-month T-Bill: around 3.7%
• 6-month T-Bill: around 3.8%
• 1-year T-Bill: around 3.9%

Again, these H.15 Treasury Bill rates are quoted on a discount basis, so they should not simply be treated as identical to a bank APY. citeturn716043search4

Treasury yields and savings-account APYs can both change quickly.

Therefore, before moving money, compare the rates available on the day you are actually making the decision.

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Savings Accounts Still Have One Major Advantage: Liquidity

After reading the tax comparison, it is easy to think:

“Then why not move all my cash into T-Bills?”

I would not look at it that way.

The biggest advantage of a high-yield savings account is liquidity and simplicity.

Money needed for things such as:

• Monthly living expenses
• Credit-card payments
• Medical bills
• Car repairs
• Emergency expenses
• Unexpected family costs

has value simply because it can be accessed quickly.

T-Bills are highly liquid securities, but they are not identical to a bank savings account.

If you hold a T-Bill until maturity, the outcome is straightforward.

If you need your money before maturity, however, you may need to sell the security in the secondary market, depending on how and where it is held.

That can introduce market-price fluctuations and additional operational steps.

Treasury securities purchased through TreasuryDirect can also involve different procedures from securities held through a brokerage account.

For that reason, keeping some emergency cash in a high-yield savings account while investing cash that is unlikely to be needed immediately in short-term Treasury Bills can be a reasonable approach.

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FDIC and NCUA Insurance Are Important Advantages of Deposit Accounts

Another major advantage of bank deposits is deposit insurance.

Eligible deposits at an FDIC-insured bank are generally insured up to:

$250,000 per depositor, per FDIC-insured bank, per ownership category

The important phrase is per ownership category.

It is not simply “$250,000 per account.”

Single accounts, joint accounts, certain retirement accounts, and trust accounts may fall into different ownership categories, potentially allowing more than $250,000 of aggregate coverage when the requirements are satisfied. citeturn477842search0turn477842search4

Federally insured credit unions have a similar system administered through the NCUA. citeturn477842search9

Treasury Bills are not FDIC-insured because they are not bank deposits.

However, that does not mean that they are somehow less secure because FDIC insurance is missing.

Treasury Bills are direct obligations of the U.S. government. FDIC itself notes that Treasury Bills, Notes, and Bonds are not FDIC-insured investments but are backed by the full faith and credit of the United States. citeturn477842search7

They are simply protected through a different structure.

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A Money Market Account and a Money Market Fund Are Not the Same Thing

This is another area that frequently causes confusion.

A Money Market Deposit Account, or MMDA, offered by a bank is a deposit product.

Eligible MMDAs at FDIC-insured banks can receive FDIC insurance, just like savings accounts and CDs. citeturn477842search4

Interest from a normal bank money market deposit account is generally taxed like ordinary bank interest.

A Money Market Mutual Fund, however, is an investment fund.

It is not a bank deposit and is not FDIC-insured.

Some Treasury-focused money market funds hold substantial amounts of U.S. government obligations.

Depending on the composition of the fund and the rules of the resident state, a portion of distributions may potentially qualify for a state income-tax subtraction.

New York, for example, allows qualifying distributions from certain regulated investment companies that derive income from U.S. government obligations to receive a subtraction when specified requirements are met. citeturn951354search0

So when comparing:

Savings vs. Money Market vs. T-Bill

make sure you first ask:

Is this a bank Money Market Deposit Account or a Money Market Mutual Fund?

They are very different financial products.

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How Does a T-Bill Actually Pay Interest?

A Treasury Bill works differently from a savings account.

T-Bills are generally sold at a discount to their face value.

For example, imagine buying a Treasury Bill with a $10,000 face value for less than $10,000.

At maturity, Treasury pays you the $10,000 face value.

The difference between what you paid and what you receive generally represents your interest income.

IRS Publication 550 explains that the difference between a T-Bill’s discounted purchase price and its face value at maturity is generally treated as interest income. citeturn716043search0

TreasuryDirect similarly explains that Bills are typically sold at a discount and pay their return when the Bill matures. citeturn138689search4

So unlike a savings account that may credit interest periodically, a Treasury Bill generally gives you the economic return through the difference between its purchase price and maturity value.

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T-Bills Have Downsides Too

T-Bills are not perfect.

One important consideration is reinvestment risk.

Suppose you buy a 13-week Treasury Bill today.

When it matures three months later, new 13-week Bills may have significantly lower yields.

If you want to keep the money invested, you must reinvest at the rate available at that time.

Savings accounts have a similar issue because their APYs can change, but with a T-Bill ladder you are explicitly reinvesting each time a security matures.

Another issue is price risk before maturity.

If you hold a Treasury Bill until maturity, its maturity value is established.

But if you sell a marketable Treasury security before maturity, the price you receive can depend on market conditions.

There are also practical decisions:

• TreasuryDirect or brokerage?
• Automatic reinvestment or manual reinvestment?
• Which maturity?
• How much cash should mature each month?
• How should Treasury interest be entered into tax software?

None of these issues are especially complicated once you become familiar with them, but they do require a little more management than simply leaving cash in a savings account.

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A T-Bill Ladder Can Help Balance Yield and Liquidity

One strategy worth understanding is a T-Bill ladder.

Instead of investing all of your available cash into one Treasury Bill with one maturity date, you spread the maturities out over time.

For example:

Immediately accessible emergency cash

→ High-Yield Savings Account

Cash unlikely to be needed immediately

→ Short-term T-Bills with different maturities

You might use combinations of:

• 4-week Bills
• 8-week Bills
• 13-week Bills

so that part of the portfolio matures regularly.

Treasury currently auctions many short-term Bill maturities every week, which makes this type of staggered approach possible. citeturn138689search0turn138689search4

This can allow you to maintain some liquidity while taking advantage of the state and local tax exemption on Treasury interest.

But the right amount of emergency cash is different for every household.

It depends on things such as:

• Stability of income
• Monthly fixed expenses
• Family size
• Medical expenses
• Housing costs
• Car-related expenses
• Other near-term obligations

There is no universal rule that says:

“Keep exactly X months in savings and put everything else into T-Bills.”

The right structure depends on your own cash-flow risk.

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How Might NJ and NY Residents Divide Their Cash?

One way to think about cash management is by purpose, rather than trying to choose one winning product.

Purpose of Money	Potential Option
Everyday spending	Checking / Savings
Immediately accessible emergency fund	High-Yield Savings
Cash not needed for several weeks or months	Consider short-term T-Bills
Near-term house down payment	Compare HYSA, T-Bills, and CDs
Excess cash for higher-tax NJ / NY / NYC residents	Always compare T-Bills on an after-tax basis
Money market option	Determine whether it is a deposit account or mutual fund
Long-term wealth building	Consider investments beyond cash products

I think the important point is:

This does not have to be “Savings versus T-Bills.”

Savings accounts have superior day-to-day liquidity.

T-Bills have a valuable state and local income-tax advantage.

Using each one for the job it does best may be more practical than putting every dollar into one product.

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When You Receive Form 1099-INT, Do Not Forget the State Adjustment

There is one tax-return issue that is easy to overlook.

Treasury interest is federally taxable, so it may appear on Form 1099-INT, typically as Treasury interest.

But:

Taxable federally does not mean taxable in New Jersey or New York.

For New Jersey residents, qualifying Treasury interest should receive the appropriate New Jersey tax-exempt treatment. New Jersey directs residents to report qualifying direct federal-obligation interest as nontaxable interest for state purposes. citeturn716043search1

For New York residents, qualifying U.S. government obligation interest included in federal income is generally deducted through the appropriate New York subtraction. citeturn951354search0

Even when using tax software, it is worth checking that the state return properly reflects the adjustment.

Otherwise, you could invest in Treasury Bills specifically for the state-tax advantage—and then accidentally pay state tax on the interest anyway.

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So Is a 4% Savings Account Better Than a T-Bill?

Not necessarily.

For a New Jersey or New York resident, a savings account yielding 4.00% can potentially produce a lower after-tax return than a T-Bill yielding somewhat less.

Using our simplified assumptions:

24% federal marginal rate

plus:

6.37% New Jersey marginal rate

a 4.00% savings account is roughly equivalent to a T-Bill yielding about:

3.66%

For a New York resident using a 6.85% assumed state marginal rate:

about 3.64%

For a New York City resident adding an assumed 3.876% NYC marginal rate:

about 3.44%

So the higher the state and local tax burden, the larger the yield gap a T-Bill can overcome.

A NYC resident might therefore find a Treasury yield well below a savings-account APY competitive on an after-tax basis.

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Final Thoughts

A 4% high-yield savings account is attractive.

But if you live in New Jersey or New York, you should not stop your analysis at the advertised APY.

Ordinary savings interest is generally subject to federal and state income tax.

New York City residents may also face local income tax.

Qualifying U.S. Treasury interest, by contrast, has this basic tax structure:

Federal income tax: Taxable

State income tax: Exempt

Local income tax: Exempt citeturn716043search0turn138689search3

That means a T-Bill can have a lower headline yield than a savings account and still leave more money in your pocket after taxes.

But yield is only one part of the decision.

You should also consider:

• Liquidity
• Emergency-fund needs
• FDIC or NCUA insurance
• T-Bill maturity dates
• Reinvestment risk
• Potential price changes if sold before maturity
• Money market account versus money market mutual fund
• State tax-return treatment
• Your actual marginal tax rates
• Possible NIIT exposure

Personally, I think T-Bills are especially useful for NJ and NY residents when viewed not simply as an “investment,” but as another cash-management tool to compare directly with high-yield savings accounts.

The most useful question is not:

“Which one has the higher interest rate?”

It is:

“After taxes, which one actually leaves me with more money?”

And there is one more question that matters just as much:

“When am I going to need this money?”

Money you may need tomorrow belongs in a highly liquid place.

Money you are unlikely to need for several weeks or months may be a better candidate for Treasury Bills.

Using savings accounts and Treasury Bills for different purposes—and comparing them after New Jersey, New York, and New York City taxes—can lead to a much more rational cash-management strategy.

This article is for general informational and educational purposes only and does not constitute individualized tax, legal, or investment advice. Interest rates, tax laws, financial-product terms, and individual tax circumstances can change. Always review current rates and applicable tax rules before making a financial decision.