Bank Gap by State
The Bank Gap in Iowa
Iowa has been flattening its income-tax brackets toward a single rate over several years, and the current top rate of 5.7% applies to savings interest along with everything else.
Last reviewed August 7, 2026 · SwitchWize Research Desk
Before IA tax
$1,005/yr
on a $25,000 balance
After IA 5.7% tax
$948/yr
recoverable by switching
On a $25,000 balance, the gap is about $1,005 a year before tax. After Iowa's 5.7% top income-tax rate on the additional interest, you keep about $948. Because Treasury interest is exempt from Iowa income tax, routing that cash through a state-tax-exempt Treasury vehicle can recover most of the difference.
Estimated Bank Gap by balance
| Balance | Current earnings | Better-fit earnings | Estimated Bank Gap | After IA tax |
|---|---|---|---|---|
| $5,000 | $19 | $220 | $201 | $190 |
| $10,000 | $38 | $440 | $402 | $379 |
| $25,000 | $95 | $1,100 | $1,005 | $948 |
| $50,000 | $190 | $2,200 | $2,010 | $1,895 |
| $100,000 | $380 | $4,400 | $4,020 | $3,791 |
Estimates over 12 months at 0.38% current APY and 4.40% better-fit APY. The "After IA tax" column applies IA's 5.7% 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 Iowa changes the math
Iowa taxes interest income at a top rate of 5.7%, on its way down under a multi-year flattening schedule already set in state law. Treasury interest remains exempt from Iowa income tax, giving higher-income Iowa savers a real after-tax edge from T-Bills in the meantime.
A below-average cost of living keeps typical Iowa emergency-fund balances modest, but the full percentage-point Bank Gap still applies to whatever that balance is.
Cost of living in Iowa is below the national average, which shapes how large an emergency fund needs to be and therefore how many dollars the Bank Gap quietly costs on idle cash.
Because Iowa 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 toolFrequently asked questions
Does Iowa tax high-yield savings account interest?
Is a high-yield savings account worth it in Iowa?
Are T-Bills better than a HYSA for Iowa savers?
Your personal Bank Gap
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Calculate my Bank GapEducational 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.