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Experts Suggest This Little Known Savings Option Over CDs Right Now

Experts like Treasury notes for their increased liquidity and tax exemptions, but there are a few risks to keep in mind.

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Deciding where to stash your savings requires more than just surveying the highest interest rates. Between weighing the return on your investment and the level of risk you’re willing to take, it’s also important to align an account’s liquidity with your savings timeline to avoid unnecessary penalties should you need your funds sooner than anticipated. 

Some of the best certificates of deposit and high-yield savings accounts offer rates north of 4.00% APY and 5.00%, respectively. But an overlooked investment vehicle known as a Treasury Note, or T-note, also deserves some attention, according to experts.

A T-note is a federal US government debt security that offers a fixed interest rate and terms ranging from two to 10 years. T-notes pay interest every six months until they mature, allowing more flexibility than most long-term CDs. T-notes may be better than CDs for savers right now because they offer competitive yields and more liquidity, said Scott Caufield, a certified public accountant at Sophos Wealth Management.

We’ll run you through the latest CD and savings rates, then look at how T-notes compare to five-year CDs, so you can choose the option that complements your savings goals best.  

Savings and CD rates are changing rapidly across banks and accounts. Experts recommend comparing rates before opening an account to get the best APY possible. Enter your information below to get CNET’s partners’ best rate for your area.

CD and HYSA rates stay put, but remain high

CD rates are still high, but most rates haven’t budged in the past several weeks, based on the banks we track at CNET. Shorter-term CDs, including three- and nine-month CDs, saw small gains this week, with average APYs inching up to 3.31% and 4.89%, respectively. Ally Bank, for example, increased its three-month CD rate from 2.50% to 2.55%. 

Short-term CD rates (one year or less) offer higher rates than most longer-term CDs, which have remained mostly unchanged since May. The average 1-year CD is 5.13%, with Forbright and Rising Bank offering the highest rate of 5.50%. 

Average APY4.71%5.13%4.24%4.02%
Rates as of Aug. 28, 2023.

High-yield savings account rates for the banks we track at CNET saw no changes this week, leaving CNET’s weekly HYSA average at 4.90% APY, where it’s sat for the past three weeks.

While many experts suggest rates for longer-term CDs, like three-year and five-year CDs, might be at their peak, the yield on T-notes has been on a steady climb since May, said Faron Daugs, a certified financial planner and CEO of Harrison Wallace Financial Group. That’s one of the reasons why Daugs is recommending considering Treasury notes.

What are treasury notes and why are experts recommending them?

Treasury notes, or T-notes, are short-to-intermediate debt securities issued by the US Treasury. When you invest in a T-note, you loan the government money and earn interest in return. This type of investment is considered low risk because it’s issued and backed by the US government, said Kendall Meade, a certified financial planner at SoFi. 

T-notes are similar to Treasury bonds, which also pay a fixed interest rate every six months, but T-notes have shorter terms. A T-note matures in two, three, five, seven or 10 years, while Treasury bonds mature in 20 or 30 years. While longer-term treasury investments tend to earn higher interest rates, right now savings accounts are experiencing what’s known as an inverted yield curve -- a period of time when shorter-term savings options have higher interest rates than longer term options. This typically occurs when investors expect savings rates to begin falling over time, and can be an indicator of a recession.

Unlike CDs, you can cash in on T-notes early without worrying about early withdrawal penalties. However, the return is less predictable, creating additional risk if you sell before maturity because the value can fluctuate, Meade said. “You can sell T-notes before they mature, but depending on the market, it could be greater than or less than face value,” Meade said. 

There’s an inverse relationship between interest rates and T-note values. When interest rates rise, like we’ve been seeing for the past 18 months, the value of an existing T-note declines, Daugs said.

“If interest rates were to decline, the value of the Treasury note would increase,” Daugs said. With many experts predicting savings rates have hit or neared their peak, that means now could be a good time to grow your money with a treasury investment, like a T-note.

The easiest way to buy T-notes is directly from the US government, at auction or through a broker. 

Are Treasury notes better than CDs right now? 

Longer-term CDs from the most competitive banks are currently offering APYs around 4%. A comparable five-year T-note yields around 4.4%, according to the most recent auction data from Treasury Direct. 

While the rates are similar, experts like Caufield advise looking at other benefits when deciding which savings option is right for you. “I like treasury securities for more than just the improved interest rate,” Caufield said. “Treasury securities are exempt from state and local tax, and there’s no credit risk, which can be an issue for CD investors who put in an amount greater than FDIC limits.”

But while most experts suggest rates for longer-term CDs, like three-year and five-year CDs, might be at their peak, the yield on T-notes has been on a steady climb since May, Daugs said. 

“I believe this increase is based partly on the expectation of interest rates remaining higher for a longer period than originally expected,” Daugs said. “But this rise in yield can also be attributed to foreign governments selling their existing Treasury notes while the US government has increased the supply to cover budget items. This increased supply and reduced demand results in the value of the bond itself to decline, which pushes the interest rate higher.” 

The five-year T-note has increased from 3.4% in April to over 4% today, and barring a recession, interest rates might remain higher for longer than currently anticipated, Caufield said. 

“That means intermediate to long-term interest rates are likely to go up, which should continue to push up the yield on intermediate-term treasury securities through the end of the year,” Caufield said. 

Additionally, if you’re worried you may need access to your money before your five-year CD matures, you have more flexibility to sell a T-note before you reach five years. Just be aware that the amount you get for your Treasury note will depend on how high interest rates are. If rates are lower than when you bought the note, you can earn more, but if rates are higher, your T-note will be worth less.

The bottom line

T-notes and five-year CDs offer comparable rates and are considered low-risk investments, but it’s important to consider your savings timeline. If you don’t need your money soon and a longer-term investment strategy complements your goals, you might consider a T-note or a five-year CD to lock in a competitive rate now. But note that you will typically face a penalty if you withdraw money from your CD before it reaches maturity, and your T-notes value could be higher or lower should you sell it early.

If you’re building an emergency fund or saving for a specific goal with a sinking fund, you’ll benefit more from a high-yield savings account. HYSAs are better for short-term savings goals because they provide more liquidity for unexpected expenses. You’ll have access to the money in an HYSA when you need it, and you can make contributions over time.

Liliana Hall is a writer for CNET Money covering banking, credit cards and mortgages. Previously, she wrote about personal credit for Bankrate and She is passionate about providing accessible content to enhance financial literacy. She graduated from the University of Texas at Austin with a bachelor's degree in journalism, and has worked in the newsrooms of KUT and the Austin Chronicle. When not working, she is probably paddle boarding, hopping on a flight or reading for her book club.
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