Where should I keep my short-term savings?

Frequently asked questions

Is a HYSA better than a money market fund?

It depends on your tax situation and access needs. A high-yield savings account (HYSA) is FDIC-insured and offers instant access, which makes it better for emergency funds. A government money market fund is not FDIC-insured but may offer a higher after-tax yield in high-tax states because Treasury income is often exempt from state and local tax.

Are government money market funds FDIC insured?

No. Government money market funds are not bank deposits and are not FDIC-insured. They are designed to maintain a stable $1.00 net asset value but that value is not guaranteed. They are generally considered very low risk but are a different type of investment than a bank savings account.

Are T-Bills better than high-yield savings accounts?

T-Bills can be more tax-efficient in high-tax states because Treasury interest is generally exempt from state and local income tax. However, your money is tied to the T-Bill's maturity date. If you need instant access or can't predict when you will need the money, a HYSA is usually more appropriate.

Why do taxes matter when comparing HYSA, money market funds, and T-Bills?

Different savings vehicles are taxed differently. HYSA interest is fully taxable at federal and state levels. Government money market fund income may be partly state-tax exempt depending on the fund's Treasury allocation. T-Bill interest is federally taxable but generally exempt from state and local tax. In high-tax states, these differences can shift which option pays the most after tax.

Can an ultra-short bond fund lose money?

Yes. Unlike a HYSA or money market fund, an ultra-short bond fund has a net asset value (NAV) that can move up or down with interest rates. A 1% rise in rates can reduce the NAV by roughly the fund's duration in years. For money you cannot afford to see temporarily decline, a stable-NAV vehicle is safer.

Where should I keep my emergency fund?

An emergency fund is best kept in an FDIC-insured high-yield savings account. The key requirements are instant access and certainty that the balance will not move down. A HYSA meets both. Money market funds and T-Bills involve trade-offs on access or price stability that make them less suitable for money you need immediately in a crisis.

What is the safest place for short-term savings?

For safety in the traditional sense — no risk of balance loss and FDIC protection — a high-yield savings account at an FDIC-insured bank is the safest option. T-Bills are backed by the U.S. government and extremely safe, but their market price can move if sold before maturity. Government money market funds are also very safe but are not FDIC-insured.

What APY does a HYSA need to beat T-Bills after tax?

The breakeven depends on your state tax rate. Because T-Bill income is generally exempt from state and local tax, a fully taxable HYSA needs a higher gross APY to match the same after-tax return. The calculator above computes this breakeven for your exact tax profile.

Should I use T-Bills for money I need soon?

Only if your timing is flexible. T-Bills have fixed maturity dates (4, 8, 13, 17, 26, or 52 weeks). If you need the money before the T-Bill matures, you can sell it in the secondary market but the price may be slightly above or below what you paid. For money needed within days, a HYSA or government money market fund is more appropriate.

What is the difference between APY and after-tax yield?

APY (annual percentage yield) is the gross stated return before taxes. After-tax yield is what you actually keep after paying federal, state/local, and any extra taxes on the interest income. The after-tax yield is the number that matters for comparing savings vehicles because taxes treat each type of interest differently.