Yes—at the moment, Treasuries are unusually attractive relative to CDs, particularly if you're comparing investments with the same maturity.

As of September 24, Treasury yields were roughly 4.5% for 1 year, 4.9% for 2 years, 5.0% for 5 years, and 5.2% for 10 years. By contrast, Bankrate's September 25 survey shows national-average CD yields of only 2.07% for one year, 1.70% for three years, and 1.77% for five years—although the best online/brokered CDs can be substantially better than those averages.

Why aren't CD rates following Treasury yields?

The important distinction is that Treasury yields and CD rates aren't set by the same mechanism.

Treasury securities trade continuously in a huge market. Their yields respond immediately to inflation expectations, expected Fed policy, government borrowing, and the extra compensation investors demand for holding longer-term bonds. The San Francisco Fed, for example, describes Treasury yields as incorporating both expected future short-term rates and a term premium.

A bank, on the other hand, sets its CD rate according to how badly it wants your deposit. If a bank already has plenty of deposits relative to the loans it wants to make, there's little reason for it to offer you 5% merely because the Treasury is paying 5%.

That's particularly relevant to what's happening now: longer Treasury yields have risen substantially. On September 1, the 10-year was 4.79%; by September 24 it was 5.18%. The 5-year went from 4.55% to 5.03%. That move doesn't automatically force banks to raise deposit rates.

Treasuries have another major advantage: taxes

For someone living in a state with an income tax, this can make the comparison even more favorable to Treasuries:

CD interest: subject to federal and state income tax.

Treasury interest: subject to federal income tax but exempt from state and local income taxes.

So a 5.0% Treasury can actually be worth more after tax than a 5.0% CD.

Buying through Fidelity

If you already have a brokerage account, buying an individual Treasury security through a broker such as Fidelity is a perfectly normal way to do this. I'd distinguish that from buying a Treasury bond fund.

If, for example, you want the money back in approximately two years, you can buy an individual Treasury maturing around September 2028 and hold it until maturity. You know the yield when you buy it and receive the face value at maturity (assuming the U.S. government pays its obligations).

That's conceptually very similar to buying a two-year CD.

There are some important differences:

Individual Treasury Bank CD

Credit protection U.S. government FDIC up to limits

State income tax Exempt Taxable

Federal income tax Taxable Taxable

Liquidity before maturity Can sell in market Usually early-withdrawal penalty

Value before maturity Can rise/fall Usually principal stable

Rate locked if held to maturity Yes Yes

Typical current yields Very competitive Often lower

FDIC insurance generally protects deposits up to $250,000 per depositor per insured bank, subject to the applicable ownership-category rules.

One subtle point: selling a Treasury early can produce a loss. If you buy a five-year Treasury yielding 5% and interest rates subsequently jump to 6%, your Treasury's market price will decline. If you hold it until maturity, that price fluctuation doesn't matter; if you need to sell early, it does.

What I would compare

Don't compare a five-year Treasury with a one-year CD merely because the Treasury yield looks attractive. Decide when you expect to need the money, and compare securities with approximately that maturity.

For example, based on the September 24 Treasury curve:

6 months: 4.34%

1 year: 4.51%

2 years: 4.87%

3 years: 4.99%

5 years: 5.03%

10 years: 5.18%

If your goal is simply "I have cash I don't expect to need for 2–5 years, and I want essentially no credit risk," I would certainly compare individual Treasuries against CDs before choosing the CD. The combination of today's Treasury yields, liquidity, and state-tax exemption makes that comparison especially worthwhile.

One other possibility is a Treasury ladder—for example, putting portions into 1-, 2-, 3-, 4-, and 5-year maturities—so some money becomes available every year while locking in today's yields on the longer pieces. Given how much the yield curve has moved recently, that may be more appealing than putting everything into one maturity.

If you tell me roughly how much you're looking to invest and how long you can leave it untouched (e.g. $100,000 for 2–5 years), I can compare a CD, Treasury, and Treasury ladder using today's yields and show the actual dollar returns.

(http://www.autoadmit.com/thread.php?thread_id=5906701&forum_id=2#50154569)