Where to Keep Your Cash: High-Yield Savings vs. CDs vs. Money Market Funds vs. Treasury Bills

First, a quick reality check on checking accounts

Most big-bank checking and traditional savings accounts pay close to zero. That's fine for the money flowing through your life each month, like a buffer for bills and a cushion against overdrafts. But any cash beyond one or two months of spending is usually better off in one of the options below. On a $20,000 emergency fund, the gap between a near-zero account and a competitive yield can easily be hundreds of dollars a year, for doing nothing more than moving the money once.

Option 1: High-yield savings accounts

A high-yield savings account (HYSA) is a regular savings account, usually from an online bank, that pays a much higher rate than a big branch bank. Online banks can afford to pay more because they don't run expensive branch networks.

• Safety: Insured by the FDIC (or the NCUA at credit unions) up to $250,000 per depositor, per bank, per ownership category.
• Access: Withdraw anytime. Transfers to your checking account usually take one to two business days.
• Rate: Variable. The bank can raise or lower it at any time, and it tends to follow the Federal Reserve's moves.
• Taxes: Interest is taxed as ordinary income at the federal and state level.

Best for: Your emergency fund, and any money you might need on short notice.

Option 2: Certificates of deposit (CDs)

A CD is a deal with a bank: you promise to leave your money untouched for a set term (commonly 3 months to 5 years), and the bank locks in your rate for that whole period.

• Safety: Same FDIC/NCUA insurance as a savings account.
• Access: Limited. Pulling money out early usually costs an early withdrawal penalty, often a few months of interest. "No-penalty" CDs exist but typically pay a bit less.
• Rate: Fixed for the term. That protects you if rates fall, but you miss out if rates rise.
• Taxes: Ordinary income, federal and state.

Best for: Money with a known due date, like a tuition payment or a home purchase 12–18 months out, especially when you think rates may fall.

Option 3: Money market funds

A money market fund is a mutual fund that holds very short-term, high-quality debt such as Treasury bills and commercial paper. You buy it in a brokerage account, and it's often the default "cash" position at firms like Fidelity, Schwab, and Vanguard. Don't confuse it with a money market account, which is a bank savings product that works much like a HYSA.

• Safety: Very high, but not FDIC-insured. These funds aim to hold a steady $1.00 share price and almost always do. Government money market funds, which hold only Treasuries and similar debt, are the most conservative choice.
• Access: Sell any business day. The money usually settles the next business day.
• Rate: Variable. Money market yields respond to rate changes quickly and have often run a bit above the best savings accounts.
• Taxes: Depends on what the fund holds. A fund invested mostly in Treasuries can pass along a partial state-tax exemption. Municipal money market funds can be federally tax-free, which is useful in high brackets.

Best for: Cash waiting to be invested, and savers who already have a brokerage account and want everything in one place.

Option 4: Treasury bills

Treasury bills (T-bills) are short-term loans to the U.S. government, with maturities from 4 weeks to 52 weeks. You buy them at a discount and receive the full face value at maturity. The difference is your interest. You can buy them directly at TreasuryDirect.gov or, more conveniently, through any major brokerage.

• Safety: Backed by the full faith and credit of the U.S. government, and there's no $250,000 insurance cap to worry about.
• Access: Your money comes back at maturity. T-bills bought at a brokerage can be sold before maturity, but the price may be slightly above or below what you paid.
• Rate: Locked for the bill's short term. Many brokerages let you "auto-roll" into a new bill at maturity, which effectively makes the rate variable over time.
• Taxes: Federal tax applies, but interest is exempt from state and local income tax. In a high-tax state, that can make a T-bill's after-tax return noticeably better than a CD or savings account with the same stated rate.

Best for: Larger cash balances, residents of high-tax states, and anyone with more than $250,000 who doesn't want to spread it across several banks.

Side-by-side comparison

Compare after-tax yields, not headline rates

Because T-bill interest escapes state tax, a lower stated rate can still come out ahead. A quick way to compare: multiply the bank rate by (1 − your state tax rate) to see what it's worth after state tax.

For example, say you live in a state with a 9% income tax, a CD pays 4.5%, and a T-bill pays 4.3%. After state tax, the CD is worth about 4.5% × 0.91 = 4.1%, while the T-bill keeps its full 4.3% at the state level. The T-bill wins despite the lower headline number. In a state with no income tax, the CD wins. (Both are still subject to federal tax, so that part is a wash.)

A simple rule: match the account to the timeline

• Money you might need any day (emergency fund, irregular bills): high-yield savings account, or a government money market fund if you prefer a brokerage.
• Money with a known date 3–24 months out (a down payment, tuition, a planned car purchase): a CD or T-bill that matures just before you need the money, so your rate is locked and there are no surprises.
• Money waiting to be invested: a money market fund in the same brokerage account, so it's ready when you are.
• Money you won't need for 5+ years: probably shouldn't be in cash at all. Over long periods, inflation quietly erodes cash, and a diversified investment portfolio has historically done much better.

How rate changes affect each option

When the Fed raises rates, savings accounts and money market funds climb within weeks, so staying variable pays off. When the Fed cuts, those same yields drop just as quickly, and the fixed options (CDs and longer T-bills) protect the rate you already locked in. You don't need to predict the Fed to benefit. A CD or T-bill ladder splits your money across several maturities (say 3, 6, 9, and 12 months) so something is always coming due. That gives you regular access plus a blend of current and locked-in rates.

Common mistakes to avoid

• Chasing teaser rates. Some accounts offer a promotional rate that drops after a few months. A consistently competitive bank beats constant account-hopping.
• Exceeding the insurance limit at one bank. If your cash tops $250,000, spread it across banks, add a joint account, or use T-bills.
• Locking up your emergency fund. A CD's early withdrawal penalty can erase months of interest right when you need the money most.
• Leaving brokerage cash uninvested. Some brokerages hold idle cash in a low-yield "sweep" account by default. Check that it's actually in a money market fund.

Actionable steps

• List your cash piles: emergency fund, short-term goals, and money waiting to be invested.
• Keep one to two months of spending in checking and move the rest of your emergency fund to a high-yield savings account.
• For each goal with a date, pick a CD or T-bill that matures just before you need the money.
• Check your state tax rate and compare after-tax yields before choosing between CDs and T-bills.
• Look at your brokerage's cash sweep setting and switch idle cash into a money market fund if needed.

Cash isn't exciting, but putting it in the right place is one of the easiest money wins there is. Set it up once, match each pile to its timeline, and your safe money will finally start pulling its weight.