Bank Gap by State

The Bank Gap in Arizona

Arizona moved to one of the lowest flat income-tax rates in the country after a 2023 reform, which keeps the Bank Gap math simple even for savers who owe state tax on their interest.

Big-bank average0.38%

Best available4.40%

$1,005/yrlost on a $25k balance · 4.02 pp spread

Last reviewed August 7, 2026 · SwitchWize Research Desk

Best savings APY

4.40%

high-yield

National average

0.38%

big-bank avg

APY gap

4.02 pp

spread

AZ tax on interest

2.50%

top marginal rate

Before AZ tax

$1,005/yr

on a $25,000 balance

After AZ 2.5% tax

$980/yr

recoverable by switching

On a $25,000 balance, the gap is about $1,005 a year before tax. After Arizona's 2.5% top income-tax rate on the additional interest, you keep about $980. Because Treasury interest is exempt from Arizona income tax, routing that cash through a state-tax-exempt Treasury vehicle can recover most of the difference.

Estimated Bank Gap by balance

Estimated annual Bank Gap by balance at 0.38% current APY versus 4.40% better-fit APY, before and after AZ state income tax
Balance	Current earnings	Better-fit earnings	Estimated Bank Gap	After AZ tax
$5,000	$19	$220	$201	$196
$10,000	$38	$440	$402	$392
$25,000	$95	$1,100	$1,005	$980
$50,000	$190	$2,200	$2,010	$1,960
$100,000	$380	$4,400	$4,020	$3,920

Estimates over 12 months at 0.38% current APY and 4.40% better-fit APY. The "After AZ tax" column applies AZ's 2.5% top income-tax rate to the additional interest; federal tax applies on top and is not shown. Example only — your result depends on your balance, rates, and time horizon.

Why Arizona changes the math

Arizona taxes interest income at a flat 2.5% rate, among the lowest of any state that taxes income at all. Treasury interest is exempt from that tax, but at 2.5% the after-tax edge from T-Bills over a taxable HYSA is small — most Arizona savers do best simply chasing the highest APY.

Living costs sit close to the national average across most of the state, though the fast-growing Phoenix metro is pushing housing costs up, gradually raising typical emergency-fund targets.

Cost of living in Arizona is near the national average, rising quickly in the Phoenix metro, which shapes how large an emergency fund needs to be and therefore how many dollars the Bank Gap quietly costs on idle cash.

After-tax tip

Because Arizona taxes savings interest but not Treasury interest, the highest after-tax yield is not always the highest headline APY. Run your tax profile through the short-term savings tool to see whether a Treasury bill or government money market fund beats a taxable account for you.

Open the short-term savings tool

Frequently asked questions

Does Arizona tax high-yield savings account interest?

Yes. Arizona treats savings interest as taxable income, with a top rate of 2.5%. Interest from U.S. Treasury bills and the Treasury portion of a government money market fund is generally exempt from Arizona income tax, which can change the after-tax winner for higher earners.

Is a high-yield savings account worth it in Arizona?

Yes. Even after Arizona state tax, moving cash from a national-average account to a top high-yield savings account still leaves you with substantially more interest. The Bank Gap is far larger than the state-tax drag on the additional interest.

Are T-Bills better than a HYSA for Arizona savers?

They can be for higher earners. Because Treasury interest is exempt from Arizona income tax, a T-Bill or government money market fund can deliver a higher after-tax yield than a fully taxable savings account at a similar headline rate. The short-term savings calculator computes the breakeven for your exact tax situation.

Your personal Bank Gap

See exactly what the gap is costing you.

Enter your balance and current rate. The Rate Gap Calculator shows the gap per year and over five years.

Calculate my Bank Gap

The Bank Gap (national) Bank Gap in Alaska Bank Gap in California Bank Gap in Colorado Bank Gap in Hawaii Browse all 50 states Methodology

Educational information, not tax or financial advice. State tax rules are summarized at a high level and depend on your full situation. Rates are illustrative of current market conditions and should be confirmed with the provider. Confirm tax treatment with a qualified professional.