Educational content only. This article is for informational purposes and does not constitute personalized financial, tax, or investment advice. Consult a qualified professional for guidance specific to your situation.
Not sure whether a HYSA or Treasury MMF is better for your state? Book a free 15-min call and I can walk you through the after-tax math.
Treasury money market funds (which are essentially mutual funds that only hold short-term U.S. Treasuries) can be an excellent alternative to high-yield savings accounts.
Not only do they provide higher risk-free return than most high-yield savings accounts (HYSAs), the interest that you generate is exempt from state and local income tax. This is particularly advantageous in states with a high income tax such as New York and California.
You can only purchase Treasury MMFs in a brokerage account - you can see here my recommendations for the best U.S. brokerage firms. Because each brokerage offers their own Treasury MMF, what you'll purchase will differ by who your broker is, which you can find in the table below.
| Brokerage name | Treasury MMF | APY* |
|---|---|---|
| Schwab | Schwab U.S. Treasury Money Fund (SNSXX) | 3.97% |
| Fidelity | Fidelity Treasury Only MMF (FDLXX) | 3.91% |
| Vanguard† | Vanguard Treasury MMF (VUSXX) | 4.23% |
* Treasury MMFs report APY as an annualized 7-day yield. This is because the Treasuries a fund holds are constantly expiring and new ones are bought. The 7-day yield will fluctuate but will generally be higher than HYSA. Note: As of April 12, 2025.
† Yields are reported after expenses. VUSXX has a notably lower expense ratio than SNSXX and FDLXX, but Schwab and Fidelity will charge fees to purchase VUSXX to steer you to their funds.
Because you're purchasing these as a mutual fund in a brokerage account, you should also note that it will take one extra day to transact. However, unlike CDs and purchasing Treasuries directly, your cash is fully liquid.
Since Treasury MMFs are purchased in a brokerage account, in the event of a brokerage failure, you are protected by insurance from the Securities Investor Protector Corporation (SIPC) and not FDIC insurance. The SIPC will treat Treasury MMFs as a security and provide insurance up to $500K.
The underlying asset is a U.S. Treasury, which are debt instruments issued by the U.S. Department of the Treasury. This is considered a risk-free investment because it is backed by the full faith and credit of the U.S. government. In the event that the U.S. government defaults on Treasuries, FDIC insurance will not be worth the paper it's written on.
Historically, Treasury MMFs have outperformed HYSA when interest rates set by the Fed are above zero—which is most of the time, the COVID-19 monetary response was the exception.
One of the major benefits of Treasury MMFs is that the interest earned is exempt from state and local income taxes. For Americans living in high-tax states or cities like California, New York City, or New Jersey—all typically over 10%, this can significantly increase your after-tax return compared to a HYSA.
To compare Treasury MMFs with taxable alternatives like HYSAs, use this simple formula:
Treasury MMF equivalent yield = Treasury MMF Rate ÷ (1 - Your State or City Tax Rate)
For example, a 4% Treasury MMF in California (13.3% tax rate) is equivalent to a 4.61% HYSA yield after taxes. The higher your state tax rate, the more valuable the tax exemption becomes.
While Treasury MMFs often offer higher yields and tax advantages, there are situations where a HYSA might be more appropriate:
For most savers looking to maximize returns on their emergency fund or short-term savings, Treasury MMFs represent an excellent option that's often overlooked in favor of more heavily marketed HYSAs.
The right answer depends on your state tax rate and the yield difference at the time. I can help you run the after-tax math in minutes. One-time consultation, no ongoing fees.
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