CD Deals Summary
Fed Meeting Preview and Deposit Rate Forecast - June 6, 2023
FOMC Meeting: Fed Funds Rate Now Over 5% - Strategies for Savers
First Republic Bank Fails and Is Acquired by Chase - Impact on DepositorsTreasury Bonds Versus CDs in a Rising Rate Environment
Since the financial crisis in 2008, CD rates have been consistently higher than equivalent term Treasury notes (notes have a maturity between one and 10 years). As a result, in most cases, an investor could get a better rate if they looked to CDs. As the chart below shows, this calculus has changed a bit over the last six months as the rates on Treasuries have shot up with the accelerating economy.
So, if you have a chunk of money to invest in a risk-free asset, which will be it be: CDs or Treasury notes?
Return comparison
A current comparison of Treasuries versus the best CD rates from DepositAccounts.com shows the following:
Comparison of Treasury Note Yields to the Best CD Rates
| Term | Treasury Yield | Best CD Rate (APY) |
|---|---|---|
| 1 year | 2.05% | 2.25% |
| 2 years | 2.27% | 2.51% |
| 3 years | 2.43% | 2.56% |
| 5 years | 2.64% | 3.00% |
As the chart above shows, Treasury note rates are close to CD rates now. And this chart includes the best rates from across the country. Treasury rates are above the average CD rate for the most common terms.
Because income from Treasury notes is state and local tax-exempt, their return against CDs is even more favorable in high-income tax states. In a state with a flat 5.1% income tax rate like Massachusetts, the return comparison looks like the following:
| Term | Tax Equivalent Yield at 5.1% State Income Tax Rate | Best CD Rate (APY) |
|---|---|---|
| 1 year | 2.16% | 2.25% |
| 2 years | 2.39% | 2.51% |
| 3 years | 2.56% | 2.56% |
| 5 years | 2.78% | 3.00% |
For someone living in California at the top tax bracket of 13% (people earning over $1,000,000/year), the analysis looks like:
| Term | Tax Equivalent Yield at 13% State Income Tax Rate | Best CD Rate (APY) |
|---|---|---|
| 1 year | 2.36% | 2.25% |
| 2 years | 2.61% | 2.51% |
| 3 years | 2.79% | 2.56% |
| 5 years | 3.03% | 3.00% |
From a return standpoint, Treasury notes and CDs are virtually indistinguishable right now. But there are reasons to consider one over the other.
Liquidity
Investors can sell their Treasury notes at any time on a very active secondary market in increments of $100. This gives an investor the flexibility of determining when to sell their notes and how much of their portfolio to liquidate.
Depositors who sell their CD before the end of the term (“breaking the CD”) must pay a penalty, which can often eat up a significant chunk of the return. CD breakage penalties range from three to 12 months of interest, often wiping out a significant portion of the deposit’s return. In many cases, you must sell the entire CD. Partial early withdrawals of principal are often not allowed.
Institutional risk
Both Treasury notes and CDs are extremely safe investments. Treasuries are backed by the full faith and credit of the United States. There has never been a missed payment, although it’s been close in the past few years when the government deadlocked on the authorization to raise the debt limit. Investors can hold as much in Treasuries as they would like, meaning there is no limit to the size of the guarantee the government will provide an investor.
CDs are backed by the FDIC up to $250,000 per institution, per individual, for each account ownership category. To receive over $250,000 in protection within one ownership category, an individual must open a CD at another institution or have a spouse open the CD at the same institution. To deposit large sums of CD money and still be covered by the FDIC, an individual has to open multiple accounts at several different institutions. FDIC-insured depositors have never lost money since the establishment of the FDIC during the Great Depression in 1933.
When a bank is closed or fails, the FDIC moves in quickly to ensure that all FDIC-insured deposits are kept whole. During the financial crisis, failed banks were often shut down on a Friday, and the money was available to deposit by the following Monday.
Although depositors who remain below the FDIC limits are made whole in the case of a bank failure, the FDIC or a bank that assumes the failed deposits is not required to honor the original CD rates of the failed bank.
CDs at federally-insured credit unions are backed by the NCUA with coverage limits that mirror the FDIC’s.
Interest-rate risk
If you plan to hold Treasury notes and a CD to maturity, then both instruments will pay you the listed rates and you will receive your principal back. But, if you need to exit early from an investment, there are differences. Treasury prices fluctuate on a day-to-day basis based on the economy, creating what is called interest-rate risk. In a rising rate environment, the market value of a Treasury will decline as interest rates climb. Investors would rather purchase a new treasury at the higher rate, and to get them to purchase a lower yielding Treasury, the market value must be marked down to equalize the return. An investor who needs to liquidate their position might be forced to sell with a loss of principal. If interest rates jump, depending on the duration of the note, an investor could lose a significant amount of principal.
If interest rates rise after the opening of a direct CD, the value of the CD will not change like with Treasuries. That’s because CDs are not liquid and are not meant to be bought and sold. If an investor decides they want to take their money out before the end of the term and reinvest it in a higher yielding CD, they’ll need to “break the CD.” This often results in a penalty to the interest earned and rarely in the principal invested. These penalties are explained in the CD terms and conditions. DepositAccounts provides a calculator to help investors calculate these breakage fees.
Transaction ease
You cannot walk into a bank branch and purchase a Treasury note. Treasuries can be purchased online from the Treasury website at Treasurydirect.gov or from a brokerage. There are no fees to purchase notes from the website. Brokerage charges are generally $0 for new issues and very low fees ($1 per bond) for secondary market transactions. The fee can be higher to buy and sell via a phone or branch transaction. Using Treasurydirect.gov or an online brokerage will require the user to set up an account and send the funds via an electronic bank transfer.
CDs can be opened and funded by walking into most bank branches or using online banking. There is no fee to open a CD. The best CD rates are generally offered by online banks, and require the depositor to open an account online and use an electronic bank transfer to send the funds, much like a Treasury transaction.
Laddering
Both CDs and Treasury notes can utilize many of same investing strategies to generate cash and minimize interest rate risk. One of the most common of these is laddering. While laddering can be done with both Treasuries and CDs, there are some key differences.
Investors ladder CDs to make their portfolio more liquid and to also minimize interest-rate risk. DepositAccounts has a good article on CD laddering here.
Treasuries are already liquid so there is no need to ladder them for this reason. Instead, investors ladder Treasuries to smooth out interest-rate risk and to provide a predictable flow of income.
Like CD laddering, Treasury laddering involves purchasing notes in a variety of terms. For example, an investor could purchase 1-, 2-, 3- and 5-year treasury notes. As the 1-year note matures, the money can then be reinvested into a new 5-year note. There are some nuances to when a Treasury payment is made and when to reinvest, but between new issues and purchasing notes on the secondary market, an investor can generally maintain their ladder. If interest rates rise during this period, the money can be reinvested at this new higher rate. Laddering ensures that money is always coming due and being reinvested at the prevailing market rate, reducing interest rate risk.
Which way to go?
So, should you put your money into a CD or a similar term Treasury note? Until recently, the answer for those interested in maximizing income was to go with the higher yielding CD. But the recent spike in interest rates provides investors with another alternative to earn some yield on a no-risk investment. Which to choose depends on personal circumstances and preferences. For savers long suffering from low rates, a second alternative is welcoming news.
cd's most often pay interest monthly or quarterly
there are "funds" that hold exclusively treasuries
I don't know of any "funds" that hold CDs exclusively
treasuries do not have a survivor option
brokered CDs most often have a survivor option (put it back to bank at par)
Either a treasury or a brokered CD can be distributed "IN KIND" to satisfy RMD
treasury rates are the same for minimum or jumbo purchase
CD rates are higher for JUMBO purchase
just some extra thoughts
Treasury bond funds do behave differently from the underlying Treasury bonds. Principal is not guaranteed and will fluctuate with market rates. They may be either active (bond fund manager tries to buy and sell bonds to try to increase the return, which sometimes can lead to gains or losses) or passive (following a Treasury bond index).
A low-cost Treasury bond fund should, over time, have roughly a similar return as a Treasury bond (or Treasury note) ladder with the same duration. Duration is a measure of interest rate sensitivity. I think a 1-5 year Treasury note ladder would probably be best replicated with a short-term Treasury bond fund (~2-3 year duration) but I'd be interested in other's opinion on this.
Perhaps Helpful Phil is suggesting that after federal tax, the difference will be smaller between the two but that goes both ways - when Treasuries are higher yielding than CDs (like in California for highest bracket), then on after-tax basis that difference will be smaller as well.
1) CD Rate = 2%
2) State Tax Rate = 13%
Person A with a federal tax rate of 22% has a tax-equivalent yield of 2.4%. Person B with a federal tax rate of 32% has a tax-equivalent yield of 2.47%.
Your federal tax rate cannot be ignored. The math used in the article is too simplistic. Run the numbers for yourself.
The only way federal tax might get affected that I can think of is when state/local taxes are itemized on federal tax. However for larger tax brackets, you are more likely to be in AMT, in which case state/local taxes won't get deducted at all.
If you still think there is a difference, please describe it qualitatively - what exactly is causing the difference between CD and Treasury rates as far as federal taxes go?
Example: Joe lives in Texas. Joe is subject to no state or local income tax. Joe buys a Treasury for 3%. The TEY is 3%. Jane, on the other hand, lives in California. She buys the exact same Treasury. She's a high-earner, and her marginal state-income tax bracket is 13%. Her Treasury interest is state-tax exempt. Her TEY (i.e., the equivalent yield she would need to earn on a CD) would be higher than 3%.
The "delta" in the TEY is caused by the exemption (or lack thereof) in state/local taxes.
If Jane of CA buys a 3% treasury, then if she has an AGI of $150k and is married filing jointly, then her tax bracket is 22% fed + 9.3% CA. Her 3% treasury will yield 3%*(1-0.22) = 2.34%. That's equivalent to a taxable CD's after-tax yield of 3.406% [ 3.406 * (1-0.22-0.093) = 2.34 ].
If Jane has an AGI of $501k, then her tax bracket is 37% + 9.3%. The 3% treasury yields 1.89%. You need a CD that gives 3.52% to get the same yield [3.52%*(1-0.37-0.093) = 1.89].
Jane had 9.3% state tax in both cases, but the TEY was 3.406% in one case, 3.52% in another; the difference is ~0.11%.
This article is about the broad choice between CDs and Treasuries.
As Ldrx points out, even in extreme cases, the federal tax rate makes little difference, and is unlikely to alter the choice between a CD or Treasury.
Of course, if a person is making several million dollars per year, and Treasuries are in a narrow sweet spot, a spreadsheet will be helpful.
Maybe the difference is small, but the math of the article is still wrong.
I'm not claiming the differences are large. But I expect an article written on this site to be at a higher level of sophistication.
Of course the federal tax rate impacts the after tax yield.
The question is, is the change large enough to make a Treasury of CD more attractive than the other? Generally no.
Unlike Phil, I don't expect any of the commentary or comments on this site to be particularly insightful. The basic data is the only purpose.
If you want the math, the formula is:
CD-equivalent rate = T-bill rate * (1-fed tax rate)/(1 - fed tax rate - state tax rate)
The difference is actually pretty significant (more than 0.2%) if you're in a high Federal and state bracket like the second table.
I think it would be worth it for DepositAccounts to update this article.
I often browse through the CD rate list, then look at the time chart to see how rates are developing over time ... only to see that the (average) rate in the time chart is always significantly lower than the deals listed!
So it's usually not clear if the megabanks have finally decided to raise their rate from 0.01% to something more realistic (thereby pushing up the average) or if the best rates are pulling up the average.
Here is a link to a google spreadsheet with the math:
https://docs.google.com/spreadsheets/d/1rxrkRNZAzkLee-67KuKnhef5Zesf5XHvO3OZonDm5yI/edit#gid=1314025488
The current yield is up to 0.50% over the base CPI-U.
You just need an inflation rate of 2.50% to match a 5 year CD (not quite there yet).
That CD's rate is frozen for five years.
The TIPS rate varies with the CPI-U.
Of course, if deflation returns, TIPS are dogs.
But TIPS create a minor tax nightmare with calculating OID etc. ...
For taxable cash, I just dump 20K a year in iBonds for some inflation protection.
Due to deflation over the last few years, both TIPS and iBonds haven't been as good as CD's.
With 8 months in a row of steady inflation, it looks like that situation may have gone away.
However, there is a bid-ask spread in the secondary market and it can be significant for trades less than $100K. Surprisingly, this spread is much less at Schwab than the other brokerages (because Schwab makes its own market).
I said as long as the additional interest from the CD or treasury (with a higher taxable yield) doesn't put the taxpayer in a higher federal tax bracket. In most cases it wouldn't because the incremental interest is generally not sufficient to change your federal tax bracket.
Remember, you're not comparing two different taxpayers; instead you're comparing the taxable equivalent yield for the same taxpayer for either a CD or a treasury, where the federal tax rate is the SAME for either investment. These assumptions are generally quite reasonable.
So the CD may have a higher nominal interest rate, but the treasury may have a higher tax equivalent yield because it is exempt from state taxes. Let me repeat: In both cases the taxpayer has the SAME MARGINAL FEDERAL TAX RATE.
He did this using the following formula:
2.05% / (1 - .051) = 2.16%
Do you seriously agree with this calculation? You can find no flaws with this calculation? Really?
1. Taxpayer 1 (20% Fed'l rate, 10% state rate); $10000 CD; 3%. Taxpayer 1 gets $300 interest, keeps $210.
2. Still Taxpayer 1 -- $10000 Treasury security at 2.625%. Taxpayer 1 gets $262.50 interest, keeps pays no state tax, keeps $210.
3. Taxpayer 2 (25% Fed'l rate, 10% state rate). $10000 CD; 3%. Taxpayer 2 gets $300 interest; keeps $195.
4. still Taxpayer 2 -- $10000 Treasury security at 2.600%. Taxpayer 2 gets $260 interest; pays no state tax; keeps $195.
Federal tax rates need to be considered. For taxpayer 1, there's no difference between a 3% CD and 2.625% Treasury security. For taxpayer 2, there's no difference between a 3% CD and a 2.600% Treasury security.
As others have noted, there are numerous errors in the article. The piece reminds of the children's quiz "How many mistakes can you spot in tihis drawing?"
And how about this howler from the article: "The best CD rates are generally offered by online banks..."
Does anyone here other than the author believe that? Did the author bother to look at the rate tables on this website? Is the author aware that credit unions exist?
What a joke.
So in your example, federal taxes make a difference if a taxpayer earns $100,000 AND the Treasury pays between 2.600% and 2.625%
This IS VERY significant, because Treasuries are known to yield 2.613%
Thank you
Why is this so difficult to understand? The federal tax rate is not a factor if its the same in either case: One taxpayer, one marginal federal tax rate.
Please show me the numbers. I don't think it is possible to come up with the 2.78% figure, without knowing the taxpayer's federal tax rate. Please demonstrate the the 2.78% figure will be correct, regardless of the taxpayer's federal income tax rate.
And please use numerical examples, rather than making ex cathedra statements.
DID I SAY THAT? Please read my post again and then again until you understand it. The reading comprehension skills of some of the posters on this site are seriously deficient.
As indicated above I have created a spreadsheet that lets you calculate all the numbers. You can download it yourself import it into Excel and test your hypothesis:
https://docs.google.com/spreadsheets/d/1rxrkRNZAzkLee-67KuKnhef5Zesf5XHvO3OZonDm5yI/edit#gid=1314025488
He did this using the following formula:
2.05% / (1 - .051) = 2.16%
Do you seriously agree with this calculation? You can find no flaws with this calculation? Really?
Absolutely laughable and easily disproven with a quick calculation (as many other posters have provided). Good luck in your sub-optimal decision making.
So yeah, if a treasury had a higher tax equivalent yield than a CD (as calculated in your example and my federal tax rate doesn't change) and I was pretty sure interest rates were not going to increase in the time frame before the treasury matures, I would certainly consider treasuries over CDs. So far, that hasn't been my experience in the last 20 years, but it was before then.
BTW, my state tax rate is 9.3%, which hasn't changed in the last 30 years.
PS. I would have agreed with you in the past since any increase in after-tax yield from the treasury was reduced by savings in my federal taxes due to the SALT deduction if I bought the CD. This is no longer true since my state and local tax are now limited to $10,000.
Let me ask you a question. If I bought a CD instead of a treasury (same maturity and amount) is it likely my marginal federal tax rate would be different?
Yes or no
They concentrate on the case where federal bracket does not change, which I agree is the right assumption in vast majority of cases.
I would give the benefit of doubt the to the author and the way I read the article is that they meant to say "state-tax-equivalend yield" instead of "tax-equivalent yield".
At the end of the day, for most taxpayers, only state tax effects are likely to determine how CD compares to Treasuries (only possible caveat to this is how SALT deduction would affect federal tax but this is even less of an issue with AMT and new tax law)
Disclosure: I am also the poster for #6 and #11
The I-bond fixed rate needs to be compared to the real yield of TIPS (for the time period one wishes to hold the I-bond). Since 5-year TIPS now yield 0.6%, with I-bonds you're about 0.5% worse off. But unlike TIPS, I-bonds have some federal tax advantages, such as being tax-deferred until the bond is sold.
Ironically, I-bonds shine during deflation (compared to TIPS), as has happened a couple of times in the last decade. This is because the floor on I-bond rates is 0%. For TIPS, deflationary rates can actually eat into your principal.
However, it's a good place to park some extra cash as an inflation hedge.
During deflation, iBonds are better than TIPS (but any bank account will beat the iBonds 0%).
If held to maturity, TIPS are guaranteed the par value of the bond (if bought at par value or less).
Due to deflation over the last few years, CD's have provided more interest than TIPS or iBonds.
For that reason, the money I have in both has been a disappointment over that period of time.
With inflation ticking-up recently, that scenario may be changing.
So, like the discussion of bonds in general, it's worthy of discussion.
Now that we are in a rising inflation and interest rate environment, it's a whole new ball game.
In a declining inflation and interest rate environment, any CD was a winner over its term.
That's not the case anymore. So, I really call into question those CD ladder strategies.
That 3% 7 year CD that I got a few years ago is starting to look like a dog now.
The bell curve on that one is probably going to be a break-even proposition at best.
Will interest rates rise faster than inflation - or, vice versa?
That's the question that I'm grappling with.
CD: paying 10% interest
State Tax: 8%; Fed Tax: 22%; Total Tax Rate = 30% (8+22)
You LOSE 30% of the 10% interest leaving you with a 7% return.
Calculate equivalent Treasury yield.
If a Treasury ONLY taxes you the Federal rate the equivalent Treasury rate will be:
7% divided by .78 (1-22%) or 8.97%
So, a 10% CD paying state and federal taxes totaling 30% will yield the same interest as a Treasury earning 8.97% interest (taxed at federal 22% rate).
CD $10,000 at 10% = $1,000 * .70 = $700 after tax interest
TR $10,000 at 8.97% = $897 * .78 = $699.66 after tax interest (rounding error)
Different interest rates; identical yields.
In this case, a Treasury rate above 8.97% beats the 10% CD due to differences in taxation.
In today's market...$10,000 investment same tax rates.
3% CD pays $300. Taxes are 30% or 90 bucks. Yield: $210
Treasury rate calculation: 210/78 = 2.69% (78% is what you get after the 22% tax)
2.69% TR pays $269. Taxes are 22% or 59 bucks. Yield: $210
I'm only interested in YIELD. In the last case a TR paying 2.7% or higher beats the CD at 3%.
Only caveat: the additional pre-tax interest from the CD doesn't put you in a higher federal tax bracket than the alternative treasury with lower pre-tax interest (which is HIGHLY unlikely).
For some reason, there are a few posters who are utterly incapable of understanding that we are comparing a treasury and a CD for the same investor as opposed to a meaningless analysis of contrasting tax equivalent yields for two different people.
The simplest thing to do is to compute the effective tax rate on the CD, accounting for state, local, federal taxes and adjustments due to allowed deductions. In other words, given $100 principal how much will I keep after all is said and done. If it's $80 then the tax rate is 20%. If you keep $68 the tax rate is 32%. Compute this percentage first.
I'm in the 24% marginal tax rate for married couples and this WILL NOT change based on estimated earned interest. Since Treasuries are taxed at the federal rate only, 24% is my tax rate on Treasuries. Period. If your rate will change, use that rate. If rates will overlap, enjoy the math (though it's nothing more than basic subtraction and multiplication). Hint: If I earned $1000 interest and $100 of it crossed over into the 32% bracket, I'd pay 24% on $900 (216) and 32% on $100 (32) for a total of $248. My effective tax rate on the $1000 interest = 24.8%
If a 4% CD will YIELD an effective rate of 2.8% (30% effective tax) then my equivalent Treasury calculation is: 2.8% divided by 76% (based on 24% marginal rate) or 3.68%
(.028/.76) = .03684 = 3.68%
Here's proof: Assume you're comparing a 2.05% Treasury and a 2.3% CD. You live in CA and your state tax rate is 9.3%.
The article/Lou/Anonymous state that all you need to look at is the state tax rate. This calculation says the Treasury would have a tax effective yield of 2.05/(1-.093) = 2.26%, so you should choose the 2.3% CD.
But look at your after tax earnings once you take into account Federal taxes (assume a 32% bracket and no SALT deduction):
Treasury: 2.05% * (1 - .32) = 1.394%
CD: 2.30% * (1 - .32 - .093) = 1.350%
The Treasury is actually the better choice.
Note that both calculations are the same taxpayer and the interest does not cause the bracket to change. Using only state tax simply gives the wrong answer and would cause you to make the wrong decision.
You must have gone through many iterations to find the one example which proves your point. Your last sentence is still almost always wrong.
I also agree with lou that in most cases this won't make a difference in the choice and when it does, it's quite small. But you are also right that one might as well just use the formula that is always right instead of an approximation.
I am the Anonymous in posts 6,11 and 65. Thank you for correcting with precise example.
Technically correct is better than sometimes correct. I understand your point about rough estimates but to criticize mathematical precision seems ill-advised on a financial discusion forum.
You are arguing against math .... Don't.
Answer given by #67 is mathematical certainty, it's pointless to talk about probability in vain attempt to muddy what ought be extremely clear.
The author is generally right, even though he might be a few basis points off in a limited number of possibilities. Even in the example you used, either investment would be a good choice since the difference in yield is a few basis points, hardly a meaningful difference.
You made it sound like a crime the author used the tax equivalent formula almost everyone in the investment community relies upon, when in fact it almost always gives you the right answer and when it doesn't, the difference in yield is infinitesimal. Your inability to see the forest for the trees calls attention to your preoccupation with minutiae.
The author may be guilty of jaywalking, while you guys are condemning him as if he murdered someone.
Don't try to whitewash about being "generally right".
Why? That's because there is no such thing in math. Either it's "completely right" or it's "completely wrong".
I think there is difference between law and math. And for sure we're talking about math here - not law. Lawyer might go with "generally right", but not mathematicians. ... Sorry.
Why? Because the difference between 1.35% and 1.394% is insignificant (on a $100,000 that's $44 of additional interest over the course of one year), at least for me. I'm assuming we are talking a 1 yr maturity, so a CD with a low EWP would be more attractive than a treasury, where in a rising interest rate environment it would be less costly to break the CD than sell the treasury before the end of one year.
Furthermore, some CDs confine the penalty to lesser of interest earned/accrued or the penalty, meaning you can't lose principal, unlike treasuries where it's very likely you can lose principal depending on the increase in interest rates during the term of the treasury.
Correct.
Given your data any Treasury above 1.98% is better.
Once I know your CD return I just divide it by (1 - yourfederaltaxrate)
1.35 / (1-.32) = 1.35/.68 = 1.98%
I also appreciate "steved"'s respectful tone in his comments, unlike some other posters here who get hot under the collar when they disagree with someone.
"anon" #64 is also correct in his analysis for those who want to take the SALT deduction.
As you say, taxable equivalent yield is used to compare differently taxed securities. It is the yield a fully taxable investment must have to provide the same after-tax return as a tax-advantaged one.
Bingo.
As always, thank you for being an island of reason AND high intelligence.
The arguing here is hurtful.
Can't we all just get along?
kaight, we have run head on into the problem with mastering basic mathematics. This problem (comparison) has many variables but, essentially, requires nothing more than four basic functions (add, subtract, divide, multiply).
It's interesting to note that the penalty for breaking a CD depends on the CD's nominal interest rate, while the "penalty" for exiting a Treasury security is a function of the change in interest rates. For example, selling a Treasury note when interest rates have not changed, will incur no penalty (except bid-ask spread or brokerage fees). On the other hand, when selling a 5-year note after holding it for one year, if interest rates have risen by 1%, would drop the note's value by about 4%. In that case, you might be better off with a CD with a reasonable EWP. (Come to think of it, I think it would rarely make sense to sell the Treasury note due to rising rates, because the rate increase is always "built into" the market value of the note to match the value of other Treasury securities with same maturity.)
Many times the value of your money keeps going down the more you receive (save) and vice versa.
Therefore, you should try to avoid taxes by investing in non taxable investments or into long term capitol gains or into qualified dividend (those are free money in certain tax brackets).
Furthermore, do what the rich people do, create charitable trust and put all of your income there and when the money are needed, pay yourself from the trust with most of it again exempt from taxes. There is a way to set it up with very little work on your part and your tax wary will disappear for life.
At times investments routinely considered taxable . . . . are not. ;-)