High-yield savings vs money market fund vs T-bills: where cash can sit
Three common places to hold cash compared: how each pays interest, what protects it, how it is taxed and what to weigh, with today's US rates.
Money you will need within a few years does not belong in the stock market, but "cash" is not one single thing. In the US there are three common places to hold it: a high-yield savings account, a money market fund and Treasury bills (T-bills). They can pay similar rates. What differs is who stands behind the money, how quickly you can reach it and how the interest is taxed.
The short version
| High-yield savings | Money market fund | Treasury bill | |
|---|---|---|---|
| What it is | Bank deposit | Fund holding short-term debt | Short-term US government debt |
| Protection | FDIC insurance, up to $250,000 per depositor, per bank, per ownership category | Not FDIC-insured; funds aim to keep a $1 share price but can lose value | Backed by the US government if held to maturity |
| Access | Usually 1 to 2 business days; rate can change anytime | Sell shares, cash typically arrives within days | Sell before maturity at market price, or wait for maturity |
| Rate | Variable | Variable, follows short-term rates | Fixed for the term you buy |
| Tax on interest | Federal and state | Federal and usually state | Federal only; exempt from state and local income tax |
Today's benchmark rates
The FDIC's national average savings rate in September 2026 was 0.37%, and the average 12-month CD rate was 1.76%. Consumer prices rose 3.7% over the same year, so the real return on an average savings account was -3.33%. The Federal Reserve's policy rate (federal funds rate) was 3.88%. Short-term rates on money market funds and T-bills tend to move with that policy rate, which is why online banks that pay well above the national average usually sit closer to it.
A national average is not what you must accept. Banks differ widely, and the average includes many large banks that pay little. The point of comparing the three options is to know what you are choosing between, not to find a single winner.
How each one works
High-yield savings account. This is an ordinary bank deposit, usually at an online bank. The rate is variable: the bank can lower it at any time without you doing anything. Its main strength is simplicity and insurance. If an FDIC-insured bank fails, deposits are covered up to $250,000 per depositor, per bank, per ownership category (single accounts, joint accounts and some retirement accounts are separate categories). Check the FDIC's deposit insurance pages for the exact rules.
Money market fund. A money market fund is an investment product, offered by brokers and fund companies, that holds short-term debt such as Treasury bills and commercial paper. It should not be confused with a bank "money market account", which is a type of insured deposit. The fund's yield changes with short-term rates. Funds aim to keep a stable $1 share price, but they are not FDIC-insured and, as the SEC's investor education site explains, it is possible to lose money. A fund that holds only government securities carries less risk than one holding corporate debt.
Treasury bill. A T-bill is sold at a discount and repaid at face value on maturity, so the interest is the difference. Terms run from a few weeks up to one year, and the minimum purchase is $100. You can buy at auction through TreasuryDirect or through a broker. Because the rate is locked in for the term, it does not fall if the Fed cuts rates, but it also does not rise.
A worked example
These are illustrations, not current quotes.
Savings rate difference. Suppose you hold $20,000 and one account pays 4.00% while another pays 3.00%. Over a year, interest is $20,000 × 0.04 = $800 versus $20,000 × 0.03 = $600. The gap is $200 a year, about $17 a month. Running the same figures through the savings calculator shows how that gap grows over several years.
T-bill yield. Suppose a 26-week bill with a $10,000 face value is bought for $9,800. You receive $10,000 at maturity, so interest is $200. Over the half-year that is $200 ÷ $9,800 = 2.04%. Doubling it to annualise gives roughly 4.08% a year (a simplified calculation that ignores compounding and the exact day count).
Tax effect. Say a T-bill and a savings account both pay 4.00% on $20,000, which is $800 of interest. If you pay a 5% state income tax, $800 × 0.05 = $40 of state tax applies to the savings interest but not to the T-bill interest. At that rate, the T-bill's after-tax advantage is $40. If your state has no income tax, the advantage is zero.
What to weigh
- Time horizon. Money for next month's rent needs full access, which favors a savings account. Money you will not touch for six months can be matched to a bill's term.
- Protection. Amounts above $250,000 at one bank are not covered by FDIC insurance. Splitting across banks or categories is one approach; T-bills are another.
- Rate risk. A variable rate can fall; a fixed T-bill rate is certain until maturity. If rates rise, a variable account catches up while a bill does not.
- Taxes. The state-tax exemption on T-bills matters most in high-tax states.
- Convenience. A savings account needs no brokerage account. Funds and bills do.
Whichever you choose, compare the rate to inflation. With a real return of -3.33% on the average account, the gap to a better-paying option is also a gap in purchasing power. For your safety-net money specifically, the emergency fund calculator helps size it, and the rates and inflation page tracks how these rates have moved since 2015.
This article explains options in general terms and is not personal financial advice. Rates, limits and tax rules change, so verify with your bank, broker and the sources below before deciding.
Sources
- FDIC national average savings rate (FRED series SNDR)
- FDIC national average 12-month CD rate (FRED series NDR12MCD)
- FDIC deposit insurance
- TreasuryDirect: Treasury bills
- Investor.gov (SEC): money market funds
Figures in the text update daily from the sources listed. Information, not financial advice.