High-Yield Savings vs Money Market vs T-Bills: Where to Park Cash

Big banks pay 0.01% on savings while online banks, money-market funds, and Treasury bills offer 4–5%. On $50k of cash, that's $2,500/year of preventable loss. The choice between cash vehicles isn't about chasing yield — it's about matching liquidity needs to the right tool, with the right tax treatment.

The four serious cash options

1. High-Yield Savings Account (HYSA)

FDIC-insured savings at online banks (Marcus, Ally, Wealthfront, SoFi, Discover, Synchrony, etc.). Yields track Fed funds rate closely. Same-day or next-day access. Federal deposit insurance up to $250k per bank, per ownership type.

Best for: emergency fund, short-term savings goals, sinking funds.
Yield: 4.0–4.5% as of 2026.
Tax: interest taxed as ordinary income, federal and state.

2. Money Market Fund (MMF)

A mutual fund that holds short-term securities (T-bills, commercial paper, repos). Held in a brokerage account. Examples: SPAXX (Fidelity), VMFXX (Vanguard), SWVXX (Schwab).

Best for: cash held in a brokerage account, awaiting investment.
Yield: 4.5–5.0% as of 2026 (typically slightly higher than HYSA).
Not FDIC insured (but extremely low historical loss rates).
Tax: ordinary income; some funds (e.g., VUSXX) are largely state-tax-exempt due to Treasury holdings.

3. Treasury Bills (T-bills)

Short-term US government debt (4-week, 8-week, 13-week, 26-week, 52-week). Bought at TreasuryDirect or through a brokerage. Backed by the full faith of the US government.

Best for: cash you don't need for a known period.
Yield: 4.5–5.0% as of 2026 (varies with maturity).
Tax: federal taxable, state tax-exempt. Big advantage in CA, NY, NJ.
Liquidity: can be sold before maturity, but at market price (slight premium or discount).

4. Certificates of Deposit (CDs)

Time-locked deposits at a bank, FDIC-insured. Sacrifice liquidity for slightly higher yield.

Best for: cash with a known future need date.
Yield: 4.5–5.0% for 1-year terms, often slightly higher for 6-month and 1-year than HYSA.
Tax: ordinary income, federal and state.
Penalty: typically 3–6 months of interest for early withdrawal.

The tax angle that often flips the answer

For investors in high-tax states, T-bills (state tax-exempt) often outperform higher-stated-yield HYSAs and CDs after taxes:

Suppose you live in California (top bracket: 13.3%) and have $100k cash:

HYSA at 4.5%: $4,500 income, taxed federal + state (~37% combined). After-tax: ~$2,835.
T-bill at 4.4%: $4,400 income, taxed federal only (~24%). After-tax: ~$3,344.

T-bill wins by ~$500/year despite the lower headline rate. Run the math at your_marginal_tax_rateto see whether T-bills win in your state.

The state-tax-exempt money market trick

Vanguard's VUSXX is a money-market fund holding ~80% Treasuries, so most of its income is state-tax-exempt. It combines money-market liquidity with most of T-bills' tax advantage. As of 2026 it's the default cash sweep at Vanguard.

The decision framework

Use HYSA

Emergency fund (instant access)
Sinking funds with monthly contributions
You don't want a brokerage account
You want FDIC insurance
State has no income tax

Use Money Market Fund

Cash sitting in brokerage between trades
Slightly higher yield matters
You hold investments at the same broker
You want to occasionally invest the cash

Use T-Bills

You live in a high-tax state (CA, NY, NJ, OR)
Cash you can lock for 4 weeks to a year
You want zero credit risk
You want flexibility to sell early

Use CDs

You want FDIC insurance over Treasury backing
Bank offers a promotional rate above market
State has no income tax (T-bill advantage moot)
You can lock for the full term

The cash management waterfall

For someone with multiple cash buckets, structure them by liquidity tier:

Checking ($2k–$5k): bills and daily spending only. Don't care about yield.
HYSA Tier 1 (1 month expenses): instant access for actual emergencies.
HYSA Tier 2 or T-bill ladder (2–5 months expenses): 1-day access via ACH transfer.
T-bills or CDs (longer-term cash, sinking funds with known dates): matched maturity to need.
Brokerage money market (overflow cash awaiting investment): SPAXX, VMFXX, etc.

T-bill ladder: a practical setup

Buy a series of T-bills with staggered maturity dates so one matures every few weeks/months. Re-invest each maturing bill into a new long-term bill. The ladder yields the longer-term rate while always having cash maturing in the near term.

Example: $40k split into 4-week, 8-week, 13-week, and 26-week T-bills, each $10k. As each matures, roll it into a new 26-week bill. After ~6 months, all your cash is yielding the 26-week rate while one bill matures every few weeks.

Don't forget the FDIC limits

FDIC insurance is $250k per depositor, per bank, per ownership category. If you have $400k in cash:

Split across 2 different FDIC banks ($200k each), or
Use a single account with a sweep that distributes across multiple banks (some HYSAs offer this), or
Hold the excess in T-bills (no FDIC needed — Treasury backing).

Joint accounts and trust beneficiaries can multiply the coverage — but the rules are detailed enough that you should verify with the FDIC's coverage calculator if you're close to the limit.

What to avoid

Big-bank checking/savings as a cash vehicle. Chase, BofA, and Wells Fargo savings rates are typically 0.01–0.05%. They count on inertia.
Brokered CDs you don't understand. Some are callable (the bank can return your money early at their discretion). Read the prospectus.
Reaching for "7% yield" in obscure instruments. Anything yielding far above the Treasury rate carries hidden risk. The cost of that risk usually appears at exactly the wrong moment.
Holding cash long-term "to time the market." Cash isn't an investment vehicle for years-long horizons. Inflation eats it. Either deploy or accept the cash drag.

Key Takeaways

Online HYSAs and money-market funds yield 4–5% in 2026; big-bank savings yields ~0.01%. The gap is preventable.
T-bills are state-tax-exempt — meaningful advantage in CA, NY, NJ, OR; meaningless in TX, FL, WA.
Money-market funds (esp. VUSXX) combine HYSA-like liquidity with T-bill-like tax efficiency.
CD ladders can yield slightly more than HYSAs but lock liquidity. T-bill ladders offer similar yield with state-tax exemption.
Match each cash bucket to the right tool by access need and tax treatment.

Run the after-tax math on your specific bracket using our Income Tax Calculator.