How to Compare Bond Yields
Different bond types are taxed differently, which can significantly impact the income you actually keep. A municipal bond may offer a lower stated yield yet still generate more after-tax income than a taxable alternative. This calculator converts each yield into a comparable, after-tax equivalent so you can evaluate options on a consistent, after-tax basis.
In-State Municipal Bond
Interest is generally exempt from both federal and home-state income taxes, making it especially attractive for investors in high-tax states.
Out-of-State Municipal Bond
Interest is generally exempt from federal income tax but still subject to your state's income tax.
U.S. Treasury
Interest is exempt from state and local income taxes but fully taxable at the federal level.
Taxable Bond
Corporate bonds, CDs, and other investments whose interest is generally taxable at both the federal and state level.
Common Questions
What Is Taxable-Equivalent Yield (TEY)?
Taxable-equivalent yield is the yield a taxable investment would need to match the after-tax income from a tax-advantaged investment such as a municipal bond.
Why Do In-State Municipal Bonds Often Appear More Attractive?
Their interest is generally exempt from both federal and home-state income tax, so a lower stated yield can still deliver more after-tax income—particularly for investors in high-tax states. The calculator quantifies that by converting each bond to an equivalent yield.
Are U.S. Treasuries Exempt from State Tax?
Yes—Treasury interest is exempt from state and local income tax, though it is fully taxable at the federal level and subject to the 3.8% surtax (if applicable). That state exemption is why a Treasury can outperform a higher-coupon corporate bond for a resident in a high-tax state.
Does the 3.8% NIIT Apply to Muni Interest?
No. Tax-exempt municipal interest is not included in net investment income, so the surtax does not apply. It can apply to taxable bonds and Treasuries (if income thresholds are met), which is why enabling it changes those comparisons.
What Does the Effective Rate Option Do?
Instead of selecting a statutory bracket, it allows you to enter a blended federal rate—useful when deductions or income spanning tax brackets result in an effective rate that differs from standard tiers.