Bank Gap by State
The Bank Gap in Michigan
Michigan applies a flat 4.25% state income tax to savings interest, a moderate rate against a cost of living that stays below the national average across most of the state.
Last reviewed August 7, 2026 · SwitchWize Research Desk
Before MI tax
$1,005/yr
on a $25,000 balance
After MI 4.25% tax
$962/yr
recoverable by switching
On a $25,000 balance, the gap is about $1,005 a year before tax. After Michigan's 4.25% top income-tax rate on the additional interest, you keep about $962. Because Treasury interest is exempt from Michigan 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 MI tax |
|---|---|---|---|---|
| $5,000 | $19 | $220 | $201 | $192 |
| $10,000 | $38 | $440 | $402 | $385 |
| $25,000 | $95 | $1,100 | $1,005 | $962 |
| $50,000 | $190 | $2,200 | $2,010 | $1,925 |
| $100,000 | $380 | $4,400 | $4,020 | $3,849 |
Estimates over 12 months at 0.38% current APY and 4.40% better-fit APY. The "After MI tax" column applies MI's 4.25% 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 Michigan changes the math
Michigan taxes interest income at a flat 4.25% rate. Treasury interest is exempt from that tax, giving a modest after-tax edge to T-Bills, though most Michigan savers will find a top HYSA rate still competitive after tax given the moderate state rate.
Living costs across most of Michigan sit below the national average, keeping typical emergency-fund targets modest outside the Detroit and Ann Arbor metros.
Cost of living in Michigan is below the national average outside metro Detroit, which shapes how large an emergency fund needs to be and therefore how many dollars the Bank Gap quietly costs on idle cash.
Because Michigan 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 Michigan tax high-yield savings account interest?
Is a high-yield savings account worth it in Michigan?
Are T-Bills better than a HYSA for Michigan 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.