Your CD Is Quietly Costing You More Than You Think
If you keep meaningful cash at a bank, you have probably compared certificate of deposit rates at some point. Maybe you noticed one local bank paying a bit more than another and moved the money.
That comparison is missing the number that matters most.
The part the rate sheet doesn’t tell you
Interest on U.S. Treasury securities is exempt from Massachusetts income tax. Interest on a bank CD is not.
This is not a loophole or a strategy. It is written into Massachusetts law: interest on obligations of the United States is excluded from Massachusetts gross income under M.G.L. ch. 62, § 2(a)(2)(A). Massachusetts taxes interest income at 5.0%, with an additional 4% on income above $1 million.
So when you compare a CD against a Treasury bill, you are not comparing like with like. One of those numbers is going to be reduced by the Commonwealth and the other is not.
What that is worth
Real numbers, both from the same week.
The largest bank headquartered on Cape Cod published its deposit rates effective August 4, 2026. Its 12-month CD paid 3.25% at its best published relationship tier. That same week the 1-year U.S. Treasury yielded 4.17%.
Before tax, a 92-basis-point gap. After Massachusetts takes 5% of the CD interest and none of the Treasury interest, the CD nets 3.09% and the gap widens to 108 basis points.
Put the other way: that CD would need to pay 4.39% to leave a Massachusetts resident in the same place after tax.
The longer terms are where it gets strange. The bank’s CD rates fall as the term extends, while the Treasury curve rises:
| Term | Local bank, best tier | U.S. Treasury | CD after MA tax | CD would need to pay |
|---|---|---|---|---|
| 6 month | 3.20% | 3.98% | 3.04% | 4.19% |
| 12 month | 3.25% | 4.17% | 3.09% | 4.39% |
| 24 month | 3.05% | 4.24% | 2.90% | 4.47% |
| 60 month | 2.80% | 4.38% | 2.66% | 4.61% |
At five years that bank pays 2.80% while the Treasury pays 4.38%. After state tax the gap is 172 basis points, and the CD asks you to lock the money up for five years to accept the lower number. The Treasury does not.
Over twelve months on $500,000, the difference is about $5,400. On a million, roughly $10,800.
Brokered CDs bought through a brokerage account paid near 4.10% the same week, much closer to the Treasury. But brokered CD interest is still fully taxable by Massachusetts, so after tax it lands around 3.90%, and the Treasury still comes out ahead.
Where the bank genuinely wins
Two places, and they are worth knowing.
Small balances. That same bank’s companion savings account pays 5.00% APY on balances up to $9,999.99. That beats the Treasury curve outright, even after tax. If you are setting aside a modest emergency fund, take it: no Treasury ladder competes with that.
Total liquidity with no term at all. Its high-yield savings account pays 2.75% APY on $10,000 or more with no maturity date and no penalty. Lower than a Treasury, but it is a savings account, and for money that might move next week that simplicity has real value.
Those are honest advantages. The comparison above is about term money, cash you have decided to set aside for months or years, which is precisely where the tax treatment compounds.
Bank rates from that institution’s published deposit rate sheet effective 2026-08-04, best tier. Treasury and brokered CD yields from a brokerage fixed-income curve the same week. Rates change daily; these figures demonstrate the arithmetic and are not an offer. Federal income tax applies to all of them, which is why the comparison isolates the state effect.
Three more differences worth knowing
Liquidity. A CD locks your money for its term. Take it out early and you pay a penalty, often several months of interest. A Treasury bill can be sold any business day at the market price. If you are holding cash precisely because you might need it, that distinction is the entire point.
Whose credit you are holding. A CD is an obligation of the bank, insured by the FDIC to $250,000 per depositor per institution. Above that limit you are an unsecured creditor of that bank. A Treasury bill is a direct obligation of the United States government, with no insurance limit because none is needed. For anyone holding more than $250,000 in cash, this is not academic.
Flexibility. A Treasury ladder can be built to mature exactly when you need money: a tax payment in April, a tuition bill in August, a closing in the fall. CDs come in the terms the bank chooses to offer.
Why nobody at the bank mentions this
Not because anyone is being dishonest. It is simply not their job.
A bank sells its own deposit products. Deposits fund lending, which is the business. Nobody at a bank is compensated for pointing out that a different instrument, purchased somewhere else, would leave you better off after tax. The rate sheet in the branch is a list of what that bank offers, not a survey of what is available.
That is exactly the difference between a product and advice. We do not issue anything, we are not paid by anyone whose product we might recommend, and we have no reason to prefer one instrument over another except the arithmetic.
When a CD is genuinely the right answer
Frequently, and this is worth saying plainly.
If your balance sits comfortably inside FDIC limits, if you are certain about the time horizon, and if a local bank is running a promotional special that beats the Treasury curve after tax, take the CD. Promotional rates are real and sometimes very good.
The point is not that Treasuries always win. It is that you cannot know which wins without doing the state-tax math, and almost no one does it.
What this actually says about cash
Most people treat cash as the part of the portfolio that does not require thinking. It is where money waits.
But cash is often the largest single position a household holds, and it is usually the least examined one. Leaving a few hundred thousand dollars in a checking account earning almost nothing, or in a CD chosen because it was the rate on the board that day, is a real decision that was never actually made.
Worth an afternoon of attention. It is the easiest money most families leave on the table.
Sources: M.G.L. ch. 62 § 2 · Mass.gov TIR 89-8, income tax treatment of interest on federal obligations
If you would like this math run on your own cash, bring a statement. The consultation is a conversation, not a sales call.
Important disclosures. This article is educational and is not personalized investment, tax, or legal advice. Long Point Wealth Management, LLC is an investment advisor registered in Massachusetts and New Jersey, serving clients nationwide consistent with applicable state requirements and exemptions.
On the tax discussion: the state-tax advantage described here applies to Massachusetts residents. Other states treat Treasury interest differently, and several have no income tax at all, in which case the comparison changes or disappears entirely. Federal income tax applies to interest from Treasuries, bank CDs and brokered CDs alike. Massachusetts also imposes an additional 4% surtax on income above $1 million. Nothing here is tax advice, individual circumstances differ, and you should consult your own tax professional before acting.
On the rates: all yields and APYs shown are as of the dates stated and are not offers. Rates change daily and the comparison above may no longer hold. Bank rates are quoted from that institution’s own published deposit rate sheet effective August 4, 2026, at its best published tier; Treasury and brokered CD yields are from a brokerage fixed-income curve the same week. Long Point is not affiliated with, endorsed by, or sponsored by any bank described here.
On the instruments: all investing involves risk, including possible loss of principal. Treasury securities sold before maturity may be worth more or less than their purchase price. Bank certificates of deposit are insured by the FDIC within applicable limits; Treasury securities are direct obligations of the United States government and are not FDIC insured. Past yields do not indicate future results, and no strategy assures a profit or protects against loss.