Treasurys have advantage over CDs in high tax states

Treasurys and CDs (within FDIC limits) have the same credit risk. But very often there is a difference in yield between the two. Many individual investors will just buy the highest yield if offered a choice. But it's important to know an important feature of Treasurys, that being, the interest is free of state and local income tax. So counterintuitively, if you live somewhere with a state income tax, buying a Treasury with a lower face value yield can actually give you a higher after-tax return than a comparable CD.

[salespoppy]

Nice reminder! Ouch on Minnesota taxes.

[brendanbyrne]

Great video. Question about the state tax benefit. If I’m looking at a discount 2 yr treasury note with a YTM of 4.07 and a coupon of 1.75, does the state tax benefit only apply to the portion that is the coupon? Or is the whole 4.07% generally considered tax free interest at the state level?