Tax Equivalent Yield Calculator
By inputting your federal tax bracket and state tax rate, you can figure out the equivalent yield for municipal bonds, treasury vs. bank CDs. Most of the time CDs have higher rate than treasury and munis, however, treasury are state tax free and muni could be both federal and state tax free. By considering your exact tax rate, you can find a better option. Spoil alert, usually CD is the worst options.
Content article
The Tax Equivalent Yield Calculator compares various investment yields, including in-state municipal bonds, U.S. Treasury securities, and certificates of deposit (CDs), across different tax rates and yields.
In the "tax equivalent yield" tab, the federal tax rate is set at 24.00%, while the state tax rate is 9.30%. The applicable tax rates for these investments are 0.00% for in-state municipal bonds, 24.00% for treasuries, and 33.30% for CDs. The yields for in-state municipal bonds range from 1.96% to 2.51%, while U.S. Treasury yields vary from 2.58% to 3.30%. CDs exhibit yields from 2.94% to 3.76%. For example, at a yield of 2.00%, the corresponding treasury yield is 2.63%, and the CD yield is 3.00%.
Moving to the "cd, treasury or muni" tab, the table begins with a link to current yields for fixed income investments. The yields for new issue CDs are 4.40% for 3-month terms, decreasing to 4.35% for 1-year terms, and reaching 4.60% for 10-year terms. In comparison, U.S. Treasury yields start at 4.27% for 3-month terms and fluctuate slightly, with 4.38% for 10-year terms. U.S. Treasury Zeros yield 4.34% for 3-months, while agency securities yield 4.37% for the same duration.
Corporate bonds show a variety of yields; for instance, Aaa-rated corporate bonds yield 3.34% for 3-months and rise to 5.16% for 30-year terms. Municipal bonds, rated Aaa, yield 3.43% for 3-months and 3.74% for 30-year terms. Taxable municipal bonds yield higher at 4.77% for 3-months, but drop to 5.14% for 10-year terms.
The tax equivalent yield benchmark indicates that CDs yield 5.14% for 3-months, while U.S. Treasury yields are slightly lower at 4.51%. The differences in yields are notable; for example, CDs show a difference of -0.74% compared to their benchmark yields for 3-month terms, while U.S. Treasuries differ by -0.24%.
In the subset section, the differences continue to reflect the competitive landscape of these investments. For instance, the Municipal (Aaa/AAA) category shows no difference across the board, maintaining a consistent yield of 0.00%. In contrast, the U.S. Treasury yields exhibit a negative difference of -0.24% for 3-month terms and -0.21% for 6-month terms, indicating a slightly less favorable position compared to the benchmark.
This detailed analysis of tax equivalent yields and current investment rates provides a comprehensive view of the landscape for investors considering municipal bonds, U.S. Treasury securities, and CDs, highlighting the varying yields and tax implications across different investment types.