HYSA vs. T-Bills: Where to Park Your Emergency Cash for Maximum Yield
CORE INSIGHTS
- Safety First: For emergency funds, liquidity and safety override marginal yield differences. Cash needed within 12 months should avoid volatility.
- Tax Efficiency: T-Bill interest is exempt from state and local taxes, offering a superior after-tax yield for residents of high-tax states (CA, NY).
- Liquidity Trade-Off: HYSAs provide instant access. T-Bills lock in rates but require selling on the secondary market for early access.
Effective cash management is the foundation of a robust portfolio. Investors seek safe harbors that combat inflation while remaining accessible. The debate often centers on the simplicity of a High-Yield Savings Account (HYSA) versus the tax advantages and security of Treasury Bills (T-Bills).
Consider a resident of New York (6% state tax).
• HYSA: 5.0% nominal yield. After 6% state tax, net yield drops to ~4.70%.
• T-Bill: 4.9% nominal yield. Exempt from state tax, net yield remains 4.90%.
Result: The tax-efficient T-Bill delivers a higher real return, despite a lower headline rate.
Visualizing After-Tax Yield
State taxes act as a drag on returns. The chart below illustrates how tax exemption makes T-Bills a superior choice for high-income earners in high-tax jurisdictions.
*Figure 1: Illustrative comparison of tax drag. Federal taxes apply to both, but state tax exemption boosts T-Bill efficiency.*
Comparing Liquidity and Security
| Feature | High-Yield Savings (HYSA) | Treasury Bills (T-Bills) |
|---|---|---|
| Liquidity | Instant / Unlimited Transfers | Secondary Market Sale Required |
| Protection | FDIC Insured ($250k limit) | Government Backed (No limit) |
| Tax Status | Fully Taxable (Fed + State) | State/Local Tax Exempt |
| Rate Type | Variable (Bank sets rate) | Fixed (Market auction rate) |
Strategic Action Steps
Residents of zero-income-tax states (TX, FL) gain less from T-Bills. Residents of high-tax states (CA, NY, MA) should prioritize T-Bills for non-immediate cash.
Keep 1-2 months of expenses in an HYSA for immediate bills. Allocate the remainder of the Emergency Fund (3-6 months) to T-Bills to capture higher net yields.
Stagger T-Bill purchases (e.g., 4-week, 8-week, 13-week) to ensure a portion of your cash matures every month, providing regular liquidity without sacrificing yield.
The Bottom Line: Where to Park Cash?
- Choose HYSA if: You value maximum simplicity and need instant access to funds for volatile monthly expenses.
- Choose T-Bills if: You have a large cash balance, live in a high-tax state, and want to lock in a fixed rate for a specific duration.
Frequently Asked Questions
ETFs (like SGOV) offer instant liquidity and diversification but lack the fixed maturity date of individual bonds. For precise liability matching, individual T-Bills are superior.
No. Corporate bond interest is fully taxable at both federal and state levels. Only U.S. Treasury obligations enjoy state/local tax exemption.
HYSAs are limited by FDIC caps ($250k). Treasury securities are backed by the full faith and credit of the U.S. government, effectively offering unlimited protection against default.