What this tool does
Converts a tax-free yield into the pre-tax yield a taxable product would need to match it, by dividing by (1 − tax rate).
How to use it
- Enter the tax-free product’s yield as a percentage.
- Enter your marginal tax rate as a percentage.
- Run it for the tax-equivalent yield.
Worked example
A 4% tax-free yield at a 25% rate gives 4 ÷ 0.75 ≈ 5.33%. A taxable product below 5.33% leaves you worse off.
Calculation method
Tax-equivalent yield
yieldrate/(1-tax/100)Frequently asked questions
- Should I use my average tax rate?
- Use the marginal rate — the rate applying to the additional interest income is what matters. An average rate understates the equivalent yield.
- What if I enter a 100% rate?
- The denominator becomes zero and the result is undefined. The rate must be below 100%.
What this tool does not cover
A single-rate model comparing equal risk and equal maturity. Local taxes, credit-risk differences, liquidity, and fees are not reflected.