CDs Now Pay More Than Treasuries, the First Time Savers Have Seen This in Years. Here’s the 4.5% Move

David Beren

Wed, August 26, 2026 at 9:16 PM GMT+3 5 min read

Quick Read

JAAA pays a 4.91% floating-rate yield that resets quarterly and rises if the Fed hikes, while CLOZ targets 7.22% by holding lower-rated CLO tranches that absorb losses first.
Top online bank 3-year CDs now pay 4.50%, edging out the 3-year Treasury at 4.25%, which marks the first time insured deposits have beaten government paper in years.
CD holders who lock in today face rate risk if the Fed hikes, and unlike Treasuries, CD interest carries no state-tax exemption.
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Savers who bought Treasury bills for safe income are watching something unusual unfold. A 3-year Treasury note yields 4.25% right now, while a top nationally available 3-year CD pays 4.50%. That small gap marks the first time in years that federally insured bank deposits have out-yielded the government paper that many income investors treat as the default option. For anyone parking cash in short Treasuries or a T-bill ETF, it is worth asking whether either instrument still fits the goal. Another option worth naming: a AAA-rated CLO ETF that is currently distributing roughly a full percentage point more than the 3-year note.

Why Treasuries Lost Their Yield Crown

The Federal Reserve has kept its target rate at 3.75% since the beginning of 2026, so it has been eight months without a change. Short-term T-bills track that policy rate closely. The 4-week yield is 3.70%, the 13-week is 3.81%, and the 52-week is 4.02%. Even the 3-year note only reaches 4.25%. By comparison, top nationally available 3-year CDs are paying 4.50%. Keep in mind that the FDIC national average for a 12-month CD is just 1.71%, so that 4.50% figure reflects what top online banks are offering, not what you would find at your average local branch. The gap really comes down to online banks offering better rates than traditional branch-based institutions.

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What CDs Still Miss

A 4.50% CD locks the rate for the full term. That works if rates fall. Policymakers are openly debating a hike, however, not a cut, and any move higher leaves the CD holder stuck below market. CDs also carry early-withdrawal penalties and report interest annually as ordinary income. Treasuries at least remain state-tax exempt. Neither instrument responds to short-rate moves once purchased.

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A 4.9% Floating-Rate Move

Janus Henderson AAA CLO ETF (NYSEARCA:JAAA) holds only AAA-rated tranches of collateralized loan obligations, the senior-most slice, which sits ahead of every other claim on a pool of broadly syndicated bank loans. Its trailing 12-month distribution yield is 4.91%, roughly 66 basis points above the 3-year Treasury and 41 basis points above the best 3-year CD. The expense ratio is 0.20%.

Structure is the reason to care. CLO AAA coupons float over a short-term reference rate and reset quarterly. If the Fed hikes, the coupon rises with it. If the Fed cuts, income falls, but the fund's price barely moves because duration is near zero. Over the past year, JAAA delivered a 4.83% total return and is up 2.94% year-to-date, with a 27.2% cumulative return over five years. Net assets stood at $26.9 billion as of April 30, 2026, so liquidity is not a concern.

Higher Yield, Real Credit Risk

Eldridge BBB-B CLO ETF (NYSEARCA:CLOZ) takes the same structure lower in the capital stack. It holds BBB and B-rated CLO tranches, which absorb losses before the AAA layer. In return, holders receive a 7.22% distribution yield. The expense ratio is 0.50%. One-year total return is 4.97%, year-to-date 3.19%, with net assets of $668 million as of May 31, 2026. This is a high-yield allocation with floating-rate income, not a Treasury substitute.

Tradeoffs Worth Naming

These CLO funds are not FDIC insured, and that is an important distinction. They carry credit risk, price risk, and liquidity risk that CDs and Treasuries do not. AAA CLO tranches have no historical default record, which is reassuring, but ETF prices can still dip in stress episodes when markets get shaky. The distributions are ordinary income taxed at marginal rates with no state-tax exemption, which can erode much of the yield edge for high-bracket savers holding these in a taxable account.

Making the Switch

Inside an IRA or 401(k), moving from T-bills or a Treasury ETF into JAAA is a same-day trade with no tax consequences. In a taxable account, selling lots at or near cost basis first limits capital-gains drag. Maturing CDs and Treasuries are natural switch points. A blended approach keeps a T-bill sleeve for state-tax-exempt income while adding JAAA for yield, as an alternative to a full rotation.

Weighing the 4.5% Question

Getting maximum insured yield with a fixed rate, a 4.50% 3-year CD beats a 4.25% Treasury today. For higher current income with floating-rate protection against a Fed hike, JAAA's 4.91% distribution offers a higher payout, with CLOZ available for investors comfortable with mezzanine credit. The right answer depends on account type, time horizon, and tolerance for a product that is not government-guaranteed.