One perk of U.S. Savings Bonds (USSB) and Treasury Bills is that they are exempt from state and local income taxes. For comparison, what would be useful is a quick way of comparing those tax-advantaged rates with the regular interest rates from a bank savings account or CD. So let’s do that. To start, we agree that we want find the equivalent bank rate that gives us the same after-tax return.
AfterTaxReturnBank = AfterTaxReturnUSSB
RateBank * (1 – Fed Tax Rate – State/Local Tax Rate) =
RateUSSB * (1 – Fed Tax Rate)
This gives us:
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