By: Lim Chan
May 27, 2025
On April 3rd, the Dow Jones Industrial Average tumbled over 1,600 points—roughly 4%—following a major tariff announcement from the Trump administration. Just a month later, on May 5th, the market rebounded, surging more than 1,100 points, or 2.8%, after the U.S. and China agreed to temporarily reduce reciprocal tariffs. This volatility highlights the unpredictable nature of the stock market, and ever since these swings, I’ve received numerous questions from family and friends asking, “Should I still invest in such an uncertain market?”
Rather than my usual advice of diversification, I encouraged them to rebalance their portfolios, shifting towards safer, lower-risk investments. The ultimate takeaway? A greater emphasis on bonds and certificates of deposit (CDs). Of these options, I personally favor Treasury bills (T-bills) the most. Let’s explore what T-bills and CDs are—and why I believe T-bills hold the advantage.
What is a Treasury Bill (T-bill)?
A T-bill is a type of short-term government bond issued by the U.S. Department of the Treasury. Sold at a discount, T-bills mature within a year, with available terms of 4, 8, 13, 17, 26, or 52 weeks. Unlike certificates of deposit (CDs), T-bills come with fewer restrictions, making them a flexible investment option. The minimum investment is $100, increasing in increments of $100.
One of the easiest ways to check the exact return on a T-bill is through TreasuryDirect.gov. For instance, as of now, the 13-week bill with CUSIP 912797PN1 carries a discount rate of 4.3%, meaning its price per $100 is $98.598444, with an issue date of May 15, 2025. This means that if you invest in this specific T-bill, you would pay $98.598444 on May 15, and in 13 weeks, you’d receive $100—earning a profit of $1.4016 per $100 invested.
While this might seem like a modest gain, scaling up changes the picture significantly. A million-dollar investment would yield a return of $14,016. Assuming the discount rate remains consistent and there are four 13-week cycles in a year, this investment could generate approximately $56,064 annually—an amount that closely aligns with the lower threshold of middle-class income in Minnesota.
What is a Certificate of Deposit (CD)?
A CD is similar to a savings account but comes with a fixed term—typically ranging from 3 to 14 months—during which funds cannot be withdrawn without penalty. Generally, the longer the term, the higher the interest rate. Most CDs also have minimum and maximum deposit requirements. Their interest rates tend to be higher than those of traditional savings accounts and are often comparable to the discount rates of Treasury bills (T-bills).
Why Do I Favor T-bills Over CDs?
There are two key reasons why I prefer T-bills over CDs:
- Shorter Terms & Competitive Rates – T-bills offer shorter investment durations while maintaining strong returns. To achieve rates comparable to T-bills, most CDs require a 12-month commitment. Meanwhile, a 4-week T-bill already boasts a discount rate of 4.22%, making it a much more flexible option for investors who don’t want to lock in their money for an extended period.
- Tax Advantages – T-bill earnings are exempt from state and local taxes, meaning only federal tax applies. In contrast, interest earned from CDs is subject to both federal and state income taxes, potentially reducing overall returns.
Final Thoughts
Both CDs and T-bills provide safe investment opportunities, offering protection from the unpredictability of the current stock market. However, for investors prioritizing flexibility and tax efficiency, T-bills are the superior choice.