High-Yield Savings, CDs and Treasury Bills: Where Short-Term Money Goes
Compare high-yield savings, CDs, Treasury bills and money market funds on safety, access, tax and yield for money you'll need within a few years.
Money you’ll need in the next few years, such as an emergency fund, a house deposit or a car, shouldn’t be in the stock market, but it shouldn’t sit earning nothing either. Four options cover most needs: high-yield savings accounts, certificates of deposit, Treasury bills and money market funds.
This guide doesn’t quote interest rates, which change constantly. Compare current rates before you choose.
Match the account to when you need the money
- Any time, without notice: high-yield savings or a money market fund.
- On a known date within a year or so: a CD or Treasury bill maturing just before you need it.
- Over several years, in stages: a ladder of CDs or Treasury bills.
High-yield savings
Online banks and some credit unions offer savings accounts that pay much more than a typical bank’s standard savings account.
- Access: usually any time, though transfers to your checking account can take a day or two.
- Safety: insured up to the limits at FDIC-insured banks and federally insured credit unions.
- Rate: variable. It can fall as well as rise.
Certificates of deposit
A CD pays a fixed rate for a fixed term, from a few months to several years.
- Access: you can usually get your money out early, but there’s a penalty, often a few months’ interest.
- Safety: insured, as with savings accounts.
- Ladders: splitting money across CDs that mature at different times gives you regular access while locking in rates.
Treasury bills
Treasury bills are short-term loans to the US government, with terms from 4 to 52 weeks. You buy them below face value and receive the full face value at maturity.
- Buying: through TreasuryDirect or a brokerage account.
- Safety: backed by the US government.
- Tax: interest is subject to federal income tax but exempt from state and local income taxes, which helps in high-tax states.
- Access: bills bought in a brokerage account can be sold before maturity, at the market price. TreasuryDirect doesn’t sell them for you: you’d have to transfer them to a brokerage first, and 4-week bills can’t be transferred. If you might need the money early, a brokerage account is simpler.
Money market funds
A money market fund is an investment fund that holds short-term, high-quality debt. It’s different from a money market account at a bank.
- Access: usually any business day, through a brokerage account.
- Safety: designed to be stable and regulated by the SEC, but not FDIC-insured, and it’s possible to lose money.
- Rate: variable, often close to short-term Treasury rates.
Putting it together
A simple layered setup many people use:
- One month of spending in checking.
- The emergency fund in a high-yield savings account (see emergency fund).
- Known future costs in CDs or Treasury bills timed to when you’ll need the money.
- Long-term money invested separately for growth.
Common questions
Are Treasury bills safer than a savings account? Both are very safe. Treasury bills are backed by the US government; insured savings are protected up to the insurance limits.
What is a CD ladder? Splitting money across several CDs that mature at different times, so some money becomes available regularly.
Is Treasury bill interest taxable? It’s subject to federal income tax but exempt from state and local income taxes.
Are money market funds FDIC insured? No. Money market accounts at banks can be; money market funds are investments.
This guide is general education, not individual financial or investment advice. It doesn’t recommend any specific bank, fund or product.