Disclosure: This article is educational and not investment advice. CreditMaze may earn a commission from some products mentioned. Yields change daily and tax treatment depends on your situation — verify current rates and consult a tax professional for decisions involving significant sums.
If you have cash you won’t spend for a few months, where you park it is worth real money. On a $50,000 balance, the difference between a big-bank savings account and a competitive alternative can be more than $2,000 a year — for identical safety and, in most cases, similar access.
This guide compares Treasury bills, high-yield savings accounts, money market accounts, money market mutual funds and CDs across the five dimensions that actually determine the winner: yield, taxes, liquidity, safety and effort.
The five places to park cash
| Vehicle | Backed by | Liquidity | State tax on interest | Rate behavior |
|---|---|---|---|---|
| Treasury bills | U.S. government (full faith and credit) | Sell any time on secondary market; or hold 4–52 weeks | Exempt | Locked at purchase for that bill |
| High-yield savings | FDIC/NCUA up to $250k | Same or next day | Taxable | Variable — bank can change any time |
| Money market account | FDIC/NCUA up to $250k | Same day; often check/debit access | Taxable | Variable |
| Money market mutual fund | Not FDIC insured; SEC-regulated portfolio | 1 business day | Taxable (Treasury-only funds partly exempt) | Floats with short rates |
| CDs | FDIC/NCUA up to $250k | Locked; early withdrawal penalty | Taxable | Fixed for the term |
Treasury bills in one paragraph
T-bills are short-term U.S. government debt with maturities of 4, 8, 13, 17, 26 and 52 weeks. They’re sold at a discount and mature at face value; the difference is your interest. You can buy them at auction directly through TreasuryDirect with a $100 minimum, or through a brokerage where they trade with no commission at most major firms. They carry no credit risk beyond that of the U.S. government itself, and their interest is exempt from state and local income tax — the feature that decides the comparison for many people.
High-yield savings in one paragraph
Online banks and credit unions pay far more than branch-based institutions because they have lower overhead. Deposits are federally insured to $250,000 per depositor per institution per ownership category, transfers settle in a day or less, and there’s nothing to manage. The catch is that the rate is variable: banks cut promptly when short rates fall, and some run teaser rates that drop after a few months. Compare current options in best high-yield savings accounts.
The after-tax comparison that actually decides it
Comparing headline yields is the most common mistake. Because Treasury interest escapes state tax, the right comparison is after-tax yield.
The math: multiply the savings account APY by (1 − your state marginal tax rate) to get its state-tax-adjusted equivalent, then compare to the T-bill yield. Federal tax applies to both, so it cancels out.
| Your state tax rate | T-bill at 4.30% | Savings APY needed to match after state tax |
|---|---|---|
| 0% (TX, FL, WA, NV, TN, SD, WY, AK, NH) | 4.30% | 4.30% |
| 5% | 4.30% | 4.53% |
| 7% | 4.30% | 4.62% |
| 10% | 4.30% | 4.78% |
| 13% | 4.30% | 4.94% |
Read that table carefully: in a high-tax state, a T-bill yielding 4.30% beats a savings account paying 4.75%. In a no-income-tax state, the comparison collapses to the raw yields and savings accounts often win on convenience alone. (Note that residents of a few localities face additional local income tax, which widens the T-bill advantage further.)
Liquidity: how fast can you actually get the money?
- High-yield savings and money market accounts: immediate to one business day. The best option for a true emergency fund. See money market accounts.
- T-bills held to maturity: you get face value on the maturity date. Perfectly predictable, but not accessible before then without selling.
- T-bills sold early: liquid through a brokerage in a deep market, but the price you get depends on rates at that moment, so you can realize a small gain or loss. TreasuryDirect does not support secondary sales directly.
- Money market funds: settle next business day; effectively cash for planning purposes.
- CDs: locked. Early withdrawal typically costs three to six months of interest. See CDs vs high-yield savings and current CD rates.
Safety: FDIC insurance vs Treasury backing
Both are extremely safe, but the mechanism differs. FDIC and NCUA insurance protects deposits up to $250,000 per depositor, per institution, per ownership category — meaning a couple with a joint account and two individual accounts at one bank can cover well over $250,000. Above the limits, insurance stops.
Treasuries have no dollar limit. A $3 million T-bill position carries the same sovereign backing as a $1,000 one, which is why large cash balances often move to Treasuries or Treasury-only money market funds rather than being spread across a dozen banks. Money market mutual funds are not insured, though government and Treasury-only funds are considered very low risk and are regulated for short maturity and high quality.
Building a T-bill ladder
Laddering solves the liquidity objection. Split the money into four equal parts and buy 4-week, 8-week, 13-week and 17-week bills. After the first cycle, something matures roughly every month, and you can either take the cash or roll it into a new bill. Most brokerages support automatic reinvestment, which reduces the whole thing to a few minutes of setup.
A ladder gives you: predictable monthly access, state-tax-free interest, no bank rate-cut risk on the bills you already hold, and no need to chase promotional savings offers. The costs are a brokerage account, a small amount of maintenance, and less instantaneous access than savings.
Which one should you use?
| Situation | Best choice |
|---|---|
| Emergency fund you may need tomorrow | High-yield savings |
| House down payment in 6–18 months | T-bill ladder or CDs matched to your timeline |
| Large balance in a high-tax state | T-bills or Treasury-only money market fund |
| Balance above $250,000 | Treasuries, or spread across insured institutions |
| Business operating reserve | Money market account plus short T-bill ladder |
| You want zero maintenance | High-yield savings |
| Cash already at a brokerage | Treasury-only money market fund |
| You expect rates to fall | Longer CDs or 52-week bills to lock the yield |
Most households are best served by a hybrid: one to two months of expenses in high-yield savings for instant access, and everything beyond that in a T-bill ladder or Treasury money market fund. Our emergency fund guide covers how much belongs in the instant-access tier, and saving for a down payment addresses timeline matching.
Pro tips
- Pro tip 1: Check your savings APY every quarter. Banks quietly cut rates on existing customers while advertising higher rates to new ones.
- Pro tip 2: Prefer a brokerage to TreasuryDirect for T-bills unless you specifically want I-bonds. Brokerages make secondary sales, reinvestment and tax reporting far easier.
- Pro tip 3: Never buy CDs longer than your actual time horizon to chase 15 extra basis points. The early withdrawal penalty erases the gain.
- Pro tip 4: Keep the tax reporting straight — T-bill interest arrives on a 1099-INT (or 1099-B if you sold early) and is federally taxable in the year of maturity.
- Pro tip 5: Don’t confuse APY with the quoted discount yield on bills. Compare bond-equivalent or investment yield to APY for an apples-to-apples read.
- Pro tip 6: Chase a savings account bonus only if the required balance and holding period pencil out — see bank account bonuses.
What about I-bonds and TIPS?
Series I savings bonds adjust with inflation and are exempt from state tax, but they lock your money for a full year, carry a three-month interest penalty if redeemed within five years, and cap purchases at $10,000 per person per year electronically. They’re a decent inflation hedge for money you truly won’t need, not a cash-parking vehicle. TIPS are similar in spirit but trade as marketable securities with price volatility, which makes them unsuitable for short-term cash. For long-horizon money, the better comparison is against a diversified portfolio — see investing in index funds and building an investment portfolio.
How to buy your first T-bill, step by step
The mechanics intimidate people far more than they should. Through a brokerage account, the whole process takes under five minutes:
- Open or log into a brokerage account and move cash in. Most major brokerages charge no commission on Treasuries.
- Find the fixed income or bond section and choose Treasuries, then filter for bills with maturities under one year.
- Decide between auction and secondary market. New-issue auctions settle on a set schedule with no markup; the secondary market lets you buy any maturity date immediately, with a small bid-ask spread.
- Enter the quantity in $1,000 increments. Ten bonds equals $10,000 of face value; you’ll pay slightly less than face and receive face at maturity.
- Choose non-competitive bidding if buying at auction. This means you accept the yield set by the auction — the correct choice for individual investors.
- Set auto-roll if offered. The brokerage will reinvest each maturing bill into a new one of the same term, which turns a ladder into a set-and-forget system.
Interest shows up as the difference between what you paid and the $1,000 you receive at maturity, reported on a 1099-INT for the tax year the bill matures. There is no monthly interest payment to track, which is one reason bills are simpler than they look.
Common cash-management mistakes
- Chasing teaser APYs. Moving $10,000 for an extra 0.3% earns $30 a year. If the rate drops in four months, you’ve done paperwork for pocket change. Move for a full percentage point or more, not for basis points.
- Locking a long CD for a marginal rate. Early withdrawal penalties routinely exceed the extra yield. Match the term to the actual date you need the money.
- Holding an emergency fund in T-bills only. Emergencies don’t wait for a maturity date. Keep at least a month of expenses genuinely instant.
- Ignoring the FDIC limit on large balances. Above $250,000 per depositor per institution, additional deposits are uninsured. Treasuries have no such ceiling.
- Forgetting about the interest at tax time. Interest income is taxable in the year received, and no withholding is taken out by default — which can create an underpayment surprise. Our guide to withholding covers how to adjust for it.
- Confusing safe with productive. Cash is for money you need in the next one to three years. Beyond that horizon, sitting in bills or savings has historically cost significant real return compared with a diversified portfolio.
Frequently asked questions
Are T-bills safer than a savings account?
Both are about as safe as financial products get. Below $250,000, insured deposits and Treasuries are effectively equivalent in safety. Above that limit, Treasuries are safer because their backing has no dollar cap.
Do I pay taxes on T-bill interest?
Yes, at the federal level in the year the bill matures. But T-bill interest is exempt from state and local income tax, which is why it frequently wins on an after-tax basis for residents of high-tax states.
Can I sell a T-bill before it matures?
Yes, if you hold it at a brokerage. The secondary Treasury market is extremely liquid, though your sale price fluctuates with interest rates, so you may realize a small gain or loss. Bills purchased through TreasuryDirect must be transferred before they can be sold.
What’s the minimum to buy a Treasury bill?
$100 at TreasuryDirect. Brokerages typically require $1,000 increments on the secondary market, and most charge no commission on Treasuries.
Will my high-yield savings rate drop?
Almost certainly, when short-term rates fall. Savings APYs are variable and banks reprice quickly. A T-bill or CD locks your yield for its term, which is the main reason to use them when you expect rates to decline.
Is a money market fund the same as a money market account?
No. A money market account is an FDIC-insured bank deposit. A money market fund is an SEC-regulated mutual fund holding short-term debt — not insured, but very low risk, and Treasury-only versions offer partial state tax exemption.
The bottom line
Keep one to two months of expenses in a high-yield savings account for instant access, and put the rest in T-bills — bought at a brokerage, laddered across 4- to 26-week maturities — if you live in a state with income tax or hold more than the FDIC limit. In a no-tax state with a modest balance, a competitive savings account is the simpler and equally good answer. Check your yields quarterly either way; the biggest cost in cash management is inertia.