Taxable-Equivalent Yield Calculator

About this calculator

Municipal bonds pay interest that is typically exempt from federal (and sometimes state) income tax, so comparing their yield directly to a taxable bond's yield understates how attractive the muni actually is. The taxable-equivalent yield (TEY) fixes this: TEY = tax-free yield ÷ (1 − marginal tax rate).

The formula essentially asks how large a taxable yield would need to be before taxes to leave the investor with the same after-tax income as the tax-free muni — the higher an investor's marginal tax rate, the larger that required taxable yield becomes, which is why munis are especially attractive to investors in higher tax brackets.

Fixed-income investors and financial advisors use TEY to compare a municipal bond against corporate bonds, Treasuries, or CDs on an apples-to-apples, after-tax basis before deciding where to allocate.