# Cash Yields Explained: How to Compare Treasury Bills, Money Market Funds, and High-Yield Savings

- Link: https://thebrieflens.com/cash-yields-explained-treasury-bills-money-market-funds-hysa/
- Published: 2026-11-01T16:00:00+00:00
- Author: The Brief Lens Editorial Team

#### The Brief Take

 * **The Core Event:** With interest rates remaining elevated above historical post-
   2008 lows, everyday savers can earn 4% to 5%+ on cash reserves, but different
   instruments carry distinct tax and liquidity trade-offs.
 * **Why It Matters:** Parking cash in a traditional brick-and-mortar savings account
   yielding 0.05% loses purchasing power to inflation, but picking the wrong cash
   alternative can lock up emergency funds or trigger unexpected state income taxes.
 * **What to Watch:** Federal Reserve rate adjustments and your personal state income
   tax bracket when calculating real after-tax yields.

## Stop Leaving Cash in Legacy Checking Accounts

For over a decade following the 2008 financial crisis, the Federal Reserve kept 
interest rates pinned near zero. In that environment, comparing savings accounts
barely mattered—cash earned virtually nothing everywhere.

In today’s higher-rate environment, holding idle capital in a legacy commercial 
bank account earning 0.01% is a significant financial mistake. On a \$20,000 emergency
fund, the difference between a zero-yield account and a 4.5% yield is $900 in safe
cash flow every year.

However, not all cash vehicles are identical. Choosing between High-Yield Savings
Accounts (HYSAs), Money Market Funds (MMFs), and Treasury Bills (T-Bills) requires
weighing three key factors: **security guarantees, liquidity, and tax treatment.**

## 1. High-Yield Savings Accounts (HYSAs)

An HYSA operates exactly like a traditional bank account, offered primarily by digital
banks that avoid the overhead of physical branch networks.

 * **Security:** Covered by **FDIC insurance** up to \$250,000 per depositor, per
   insured institution. Backed by the full faith and credit of the U.S. government
   against bank failure.
 * **Liquidity:** Immediate. Funds can be transferred to checking accounts via ACH
   within 1 to 2 business days.
 * **Tax Status:** Interest earned is subject to both **federal and state income
   taxes** at your ordinary income rate.

## 2. Money Market Funds (MMFs)

Often confused with bank money market _deposit_ accounts, a Money Market _Fund_ 
is a mutual fund held within a brokerage account (such as Vanguard, Fidelity, or
Charles Schwab).

 * **Security:** Covered by **SIPC insurance** (protecting against brokerage insolvency,
   not investment loss). MMFs invest in short-term government debt and repurchase
   agreements, aiming to maintain a stable Net Asset Value (NAV) of \$1.00 per share.
 * **Liquidity:** High. Trades settle next-day (T+1), and many brokerages allow 
   direct debit card access or check-writing against cash sweep funds.
 * **Tax Status:** If invested in a “Government” or “Treasury” Money Market Fund,
   the portion of dividends generated by U.S. Treasuries is generally **exempt from
   state and local income taxes**.

## 3. Short-Term Treasury Bills (T-Bills)

Treasury Bills are short-term debt obligations issued by the U.S. Department of 
the Treasury with maturities ranging from 4 weeks to 52 weeks, purchased directly
via TreasuryDirect or through a brokerage.

 * **Security:** Highest possible safety. Directly backed by the U.S. Treasury; 
   default risk is virtually zero.
 * **Liquidity:** Moderate. T-Bills are sold at a discount and mature at face value.
   While you can sell them on the secondary market before maturity through a broker,
   funds are intended to be held until the duration expires.
 * **Tax Status:** **100% exempt from state and local income taxes.**

    ```
    ┌─────────────────────────┬──────────────┬──────────────┬──────────────────────────────┐
    │ Instrument              │ Insurance    │ Liquidity    │ State Tax Status             │
    ├─────────────────────────┼──────────────┼──────────────┼──────────────────────────────┤
    │ High-Yield Savings      │ FDIC         │ 1-2 Days     │ Fully Taxable (Fed + State)  │
    │ Money Market Fund       │ SIPC         │ Same/Next    │ Partial/Full State Exemption │
    │ U.S. Treasury Bills     │ U.S. Gov     │ Fixed Term   │ 100% State Tax Exempt        │
    └─────────────────────────┴──────────────┴──────────────┴──────────────────────────────┘
    ```

## The Decision Framework: Which Should You Choose?

 1. **For Everyday Emergency Cash (1 to 2 months of expenses):** Use an **HYSA** for
    immediate liquidity without worrying about market settlement times.
 2. **For High-Income Earners in High-Tax States (CA, NY, NJ):** Buy **T-Bills** or
    allocate to a **Treasury Money Market Fund**. Avoiding state income taxes often
    boosts your effective net yield by 0.50% to 1.00% over a standard savings account.
 3. **For Dry Powder in an Investment Account:** Keep cash in a brokerage **Money Market
    Fund** to earn peak yield while maintaining immediate purchasing power for market
    opportunities.