A 5% APY banner on a Marcus, Ally, or SoFi savings page reads like easy money. Drop in $100,000 and you walk away with $5,000 a year, right? Almost. Once your federal marginal rate and your state’s income tax take their cuts, the actual number that lands in the account looks more like $3,300 to $3,800 depending on where you live. The headline APY is marketing copy; the after-tax effective APY is what shows up on your statement.
$100K, 5% APY, one year — what really lands
Start with the simplest scenario. A $100,000 lump sum in a high-yield savings account paying 5.00% APY for twelve months, no withdrawals, no fees.
| Line | Amount |
|---|---|
| Principal | $100,000.00 |
| Pre-tax interest (5.00% APY) | $5,000.00 |
| Federal tax at 24% marginal | -$1,200.00 |
| State tax at 9.3% (CA) | -$465.00 |
| After-tax interest (CA) | $3,335.00 |
| After-tax interest (TX, no state tax) | $3,800.00 |
The same APY produces $465 less for the California resident than for the Texas resident. That gap is small in absolute terms, but it shifts which product wins the comparison once you bring Treasury bills (state-tax-exempt) into the picture.
How federal and state stack — and why your bracket is not your effective rate
Interest income is ordinary income at the federal level. Per the IRS, any bank account that paid more than $10 in interest issues a Form 1099-INT for the tax year, and the entire amount stacks on top of your wages. If your last dollar of wages put you in the 24% federal bracket, the first dollar of interest also gets taxed at 24%. Your effective rate is rarely the bracket — it averages your bracket against earlier brackets — but the marginal rate is what matters for new interest.
State adds a second layer. California’s top marginal rate is 13.3%, the highest in the country, and applies on top of the federal bill. New York hits 10.9% at the top, New Jersey 10.75%, and the District of Columbia 10.75%. Nine states tax wage income at zero — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming as of 2026 — and most of them likewise spare interest. The interest tool’s after-tax toggle takes federal and state separately, so you can model your exact stack instead of guessing a combined number.
Treasury bills change the math in high-tax states
If you live in a state with serious income tax, comparing HYSA to Treasury bills almost always tilts toward Treasuries. T-bill interest is federally taxable but state-tax-exempt, a carve-out written into 31 U.S.C. § 3124(a). The clean way to compare a 4.5% T-bill against a 5% HYSA is the tax-equivalent yield:
T-bill yield / (1 - federal marginal rate) = federally taxable equivalent
A 4.5% T-bill at the 24% federal bracket converts to 4.5 / (1 - 0.24) ≈ 5.92% federally taxable equivalent. Compare that against a 5% HYSA which lands at 5% × (1 - 0.333) ≈ 3.34% after combined California tax. The T-bill wins by roughly 2.6 percentage points after tax in this scenario. In Texas, where state tax is zero, the gap closes to maybe 1 percentage point and the HYSA’s flexibility (no maturity ladder) starts to matter more than yield.
The interest tool handles HYSA, CD, and MMA as savings products with the same after-tax math. Treasuries are not yet a separate selection, but you can model their after-tax behavior by entering only the federal marginal rate (and zero for state) since T-bill interest skips state tax.
CD versus HYSA — the early-withdrawal trap
A 12-month CD at 5.10% APY beats a 5.00% HYSA on paper. The catch is the early-withdrawal penalty (EWP) if you break the CD before maturity. Most banks charge 3, 6, or 12 months of interest, applied as principal × APY × penalty months / 12.
For a $100,000 CD at 5% APY with a 6-month EWP, breaking it at month 6 costs:
$100,000 × 0.05 × (6 / 12) = $2,500 penalty
If interest rates jumped 1 percentage point and you wanted to roll the money into a new 6% CD, the gain on the remaining 6 months is 0.5 × 1% × $100,000 = $500. The penalty wipes out the gain five times over. The math only flips in your favor if the new rate is dramatically higher (a 5%+ jump) or if you are nearly at maturity. The interest tool’s CD form takes the EWP and a “withdraw at month X” input so you can simulate the break-even directly.
A three-step decision flow before you click “Open account”
If you have $100K to park for a year and a savings page in front of you, run these three checks in the interest tool before committing.
- Convert headline APY to after-tax APY. Toggle the after-tax field, enter your federal and state marginal rates, and read the effective number. The gap between headline and effective is your real comparison currency.
- Run T-bill tax-equivalent yield in parallel. If you live in a high-tax state, T-bills almost always win. Save five minutes and check the tax-equivalent yield against the HYSA’s after-tax APY before you fund the account.
- Model the EWP if you are looking at a CD. Enter penalty months and a hypothetical “withdraw at month X” if rates rise during the term. If the math does not survive a +1 percentage point rate jump halfway through, the CD probably is not the right wrapper for emergency-fund money.
A $100,000 deposit decision looks like a single question — “which APY is highest” — but is actually four variables at once: principal, APY or APR, federal+state marginal, and product wrapper (HYSA, CD, T-bill). The headline number is marketing. The number that shows up on your statement is the truth, and the interest tool is built so the truth takes one screen instead of three.
