Updated October 27, 2026 from live rates

Where to keep cash in Alabama

Alabama’s top income tax rate is 5.00%. At that rate and 37% federal, a 1-year Treasury bill at 4.50% keeps the most: about $7,088 a year on $250,000 after tax, versus $15 in a default brokerage sweep. A CD or savings account would need to pay 4.89% to keep as much as a 1-year Treasury bill at 4.50%.

Option

Rate

Kept a year on $250,000

1-year Treasury bill

4.50%

$7,088

CFG Bank 1-year CD

4.65%

$6,743

3-month Treasury bill

4.22%

$6,647

Treasury-only money fund

3.79%

$5,969

Marcus by Goldman Sachs 11-month No-Penalty CD

4.00%

$5,800

Wealthfront Cash Account

3.55%

$5,148

Municipal money fund (not your state's)

1.45%

$3,444

Merrill Edge

0.01%

$15

Why Treasuries win in Alabama

Savings accounts, CDs and most money funds pay interest that Alabama taxes at up to 5.00%. Treasury bills don’t. So a Treasury bill paying 4.50% keeps what a fully taxable account paying 4.89% would, for a top-bracket Alabama resident. Today the best 1-year CD we track pays 4.65% and the best savings account 3.55%.

Municipal money funds in Alabama

We don’t list a money fund that holds only Alabama municipal debt. A national municipal fund is free of federal tax but generally taxed by Alabama; for a top-bracket resident it needs at least 2.98% to beat a 1-year Treasury bill.

Alabama taxes on cash, in brief

Top income tax rate: 5.00%. Your own rate may be lower; change it above.
Interest on U.S. Treasury bills, notes and bonds: exempt from state and local income tax, taxed federally.
Savings accounts, CDs and prime or government money funds: taxed by Alabama, except the share of a fund’s income that comes from U.S. Treasuries.
Some Alabama cities or counties also levy a local income tax. Where it covers interest, Treasuries are exempt from it too, which widens their edge.

Questions

Is Treasury bill interest taxed in Alabama?

No. Interest on U.S. Treasury bills, notes and bonds is exempt from state and local income tax under federal law, so Alabama doesn’t tax it. It is still subject to federal income tax. Interest from savings accounts and CDs is taxed by Alabama at up to 5.00%.

Where should I keep cash in Alabama?

At Alabama’s top rate and 37% federal, a 1-year Treasury bill keeps the most after tax today (4.50%). The answer depends on your brackets; the calculator on this page updates for yours.

What rate does a CD need to beat Treasury bills in Alabama?

At Alabama’s top rate and 37% federal, a CD or savings account needs at least 4.89% to keep as much as a 1-year Treasury bill paying 4.50%.

Rates: each provider’s own page and the U.S. Treasury, October 27, 2026. State rates: Tax Foundation, 2026 (top single-filer rate; local taxes not included). General information, not tax advice. Other states →