MW My wife and I buy promotional CDs with our tax-refund check. Is now a bad time to switch to Treasurys?
By Quentin Fottrell
'We have no experience with Treasurys'
"We are now wondering whether we should consider Treasurys." (Photo subject is a model.)
Dear Quentin,
My wife and I have, in recent years, been purchasing CDs from our bank with the money we receive from our income-tax refunds. Those refunds used to come to us in the form of paper checks that were mailed to us. The checks were considered "new money" by the bank, so we were able to purchase new CDs with them.
Now, however, income-tax refunds will no longer be sent as checks but instead will be deposited directly into our bank account. I imagine that such deposits would no longer be considered "new money," and therefore would not be eligible for the purchase of a CD at a promotional rate.
We are now wondering whether we should consider Treasurys. We have no experience with Treasurys and would appreciate any advice. Among our accounts is a brokerage account through which we are able to purchase or sell shares of stock. We are considering purchasing Treasurys through that account.
What do you think about that?
Bargain Hunter
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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
Offering promotional rates on CDs is a way of attracting new funds and/or new customers.
Dear Bargain Hunter,
Banks like "new money" because that money has, in theory, not been previously deposited with that institution.
Offering promotional rates on CDs aims to attract new funds and/or customers. With a physical check, you usually have more choices: deposit it at your current bank or take it instead to, say, your credit union. As a result, many banks do treat those paper checks as an external transfer or "new money." Electronic transfers into your account, however, are usually regarded as internal credits. So you don't get to use that cash at promotional rates.
You and your wife could take a more circuitous route to avail yourselves of CD promos: You could, if you had the time and inclination, instruct your tax refund to go to another institution, and then move that money into your main bank via check or electronic transfer. The receiving bank will usually treat it as "new money" because it's coming from another financial institution. (You can currently get CDs for 4%-4.20%).
And now for the catch: Banks are wise to many of these orchestral maneuvers and, as such, they typically impose a lookback period of 30 to 90 days, especially at any of their affiliated banks or brokerages. The bank's system is sensitive to money that comes from within the broader financial ecosystem. "New money" must live up to its name, and if a bank's system (or employee) suspects that those funds have been moved around to game the system it will disqualify it as new money.
Related: 'He didn't seem very alert': Our CPA said we owe the IRS $443, but we're actually due a refund of $637. Do we fire him?
Treasurys are a good bet
U.S. Treasurys are still a good bet, despite mounting uncertainty about the trajectory of Federal Reserve interest rates. Certificates of deposit and Treasurys are both regarded as safe havens, although the latter don't offer promotional deals for "new money." CDs are insured up to limits by the Federal Deposit Insurance Corp., up to $250,000 per depositor and per insured bank for each account category. Treasury bonds, meanwhile, are backed by the U.S. Department of the Treasury.
The $30 trillion Treasury market is showing signs of strain, with soft demand at recent auctions pushing yields higher - around 4.48% for 10-year bonds and 3.9%-3.95% for 2-year notes, as MarketWatch has reported. (Yield ranges constantly fluctuate.) Meanwhile, the Iran conflict has driven oil prices up more than 50%, surpassing $100 a barrel, sparking serious concerns about an economic downturn and a spike in the cost of living due to the rise of food and transportation costs.
If you are seeking to reinvest the proceeds and maximize your yield and, assuming the client is in a higher tax bracket, you would likely benefit from investing in tax-free municipal bonds, as opposed to CDs or taxable U.S. Treasurys, says Andrew Clinton, CEO of Clinton Investment Management in Stamford, Conn. "For those in high tax brackets, the taxable equivalent yields of municipal bonds are often higher than those of taxable CDs and Treasurys."
The $30 trillion Treasury market is showing signs of strain.
That said, Treasurys could be a better option than CDs, if you are in a low tax bracket, Clinton adds. "Treasury bills and notes often carry yields that are higher than CDs, absent a promotional rate. In addition, the underlying credit quality of U.S. Treasuries is generally perceived to be of the highest credit quality. If one wished to invest in municipal bonds, however, we would strongly recommend working with a professional manager to help construct a diversified municipal bond portfolio, as there are over 60,000 individual issuers of municipal bonds to select from."
Analysts at U.S. Bank say the 10-year Treasury yield has remained a helpful measure of the broader bond backdrop. "With 10-year Treasury yields mostly holding near the 4.0% to 4.25% range in recent months, investors can earn more income than they could for much of the prior decade while still emphasizing high-quality fixed income," they say. "That higher starting yield can improve the long-term income profile of a portfolio, even if day-to-day pricing remains uneven."
Policy decisions can pull yields in different directions, particularly when geopolitical events are moving at a brisk clip. At its March 17-18 meeting, the Federal Open Market Committee kept the federal funds target rate at 3.50% to 3.75%. This was the second consecutive meeting with no change. "The pause highlights a balancing act. Officials have moved away from peak restriction," analysts at U.S. Bank (USB) say, "but they still want more evidence that inflation is cooling enough to support additional easing."
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Flexibility on Treasurys vs. CDs
Treasury bonds do not have the same flexibility as CDs: With CDs, you commit to a set period of time, and you must pay a penalty if you withdraw early. If you take your money out of a Treasury early, you simply get back the current market value. (Fair warning: selling early may result in a gain or loss.) While interest rates can change with high-yield savings accounts, based on the Federal Reserve's benchmark rate, the rate does not change for CDs or Treasury bills after you purchase them.
Yields on Treasurys are often on par with - or even exceed - CD rates, particularly for short-term options. That said, CDs can sometimes feature higher promotional rates, as you've seen. Treasurys also offer a tax advantage: While CD interest is generally taxed at the federal, state and local levels, interest on Treasurys is exempt from state and local taxes. Over time, that tax benefit can add up.
You can invest in short-term Treasury bills (ranging from a few weeks up to a year), medium-term notes (2-10 years) or long-term bonds (20-30 years) through your brokerage or via TreasuryDirect. A simple strategy is to "ladder" Treasury bills: Divide your investment into portions and purchase bills with staggered maturities, such as 3, 6, 9 and 12 months. This approach provides regular access to cash, and helps avoid the early-withdrawal penalties you would get with CDs.
P.S. Don't forget that large tax refunds mean the IRS has been allowed to hold your money interest-free.
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-Quentin Fottrell
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April 03, 2026 17:20 ET (21:20 GMT)
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