Where Should I Save Cash? HYSA, Treasury Bills, or Certificates of Deposits?

After the Financial Crisis of 2008, the Federal Reserve slashed the federal funds rate to historic and near-historic lows that lasted for more than a decade.

But that changed in 2022 and 2023 when the Fed raised rates 11 times in an effort to combat soaring inflation.

As the Fed raised rates, interest on high-yield savings accounts (HYSA) also increased, making them an attractive option for investors needing to save money outside of retirement plans for short-term goals or emergencies.

But as inflation began receding from its June 2022 peak of 9.1%, the Federal Reserve cut the federal funds rate three times from September 2024 to December 2024, resulting in decreased rates on savings accounts.

With HYSA rates dropping, it may be worth considering other savings strategies.

We’ll explore six options that can keep your cash safe, including basic savings accounts, HYSAs, sweep accounts, CDs, Treasury money market funds and Treasury Bills (T-Bills).

Before choosing where to stash your cash, it’s important to understand how each works and the pros and cons of choosing one over another.

Basic Savings Accounts

Traditional savings accounts are deposit accounts you can open at your local bank, credit union or online.

You can make deposits into your account at any time. However, your financial institution may limit the number of “convenient” withdrawals or transfers you can make each month.

Funds stashed in a savings account typically earn interest at very low rates, but they allow you to keep your money safe while saving for specific goals like an emergency fund or down payment on a house or car.

Savings accounts make it easy to separate money for specific goals from funds you keep in a checking account for routine monthly expenses, such as rent, utilities, groceries and student loan payments.

You can even open a different account for each goal and set up automatic transfers to help prevent overspending and keep your savings on track.

Pros

• Low-risk: Unlike investment accounts, most savings accounts are FDIC- or NCUA-insured up to $250,000 per person. If your financial institution fails, you’ll recoup your money up to the limit.
• Liquidity: You can access cash from your account at any time.
• Opening deposit: The amount of money required to open a savings account is generally low, typically ranging from $25 to $100.

Cons

• Withdrawal limits: During COVID, the Federal Reserve eliminated transaction limits on savings accounts, previously imposed by Regulation D. However, some financial institutions still limit the number of “convenient” withdrawals or transfers you can make.
• Low interest rates: While the money in a savings account earns interest, rates are typically extremely low. They’re also variable, so you won’t know for sure how much you’ll earn over time.
• Fees: It’s not uncommon for financial institutions to charge fees, such as maintenance, low balance and ATM fees. You may be able to have certain fees waived by maintaining a minimum average account balance, but balance requirements vary widely and could be as much as several thousand dollars.

High Yield Savings Accounts (HYSA)

HYSAs work like traditional savings accounts but have significantly higher interest rates—sometimes 10 to 15 times higher.

While you’ll get more bang for your buck with a HYSA compared to a traditional savings account, you may not continue to receive the same rate over time.

As inflationary pressures recede, rates on HYSAs may decline.

You’re most likely to find HYSAs at online banks because they have lower overhead than traditional brick-and-mortar institutions and can pass those savings to consumers in the form of higher interest rates. However, some traditional banks and credit unions also offer HYSAs with competitive rates.

Pros:

• Interest rates: HYSAs often have interest rates that are 10 to 15 times higher than rates for traditional savings accounts.
• Safety: Most HYSAs are FDIC- or NCUA-insured making them a low-risk savings option.
• Liquid: The cash in a HYSA is easily accessible when you need it.
• Opening balance: The amount of money you need to open a HYSA is typically low, and some institutions have no minimum opening deposit requirements.

Cons:

• Variable rates: Because interest rates on HYSAs fluctuate, there’s no guarantee you’ll continuously earn the rate you receive when you open the account.
• Limited withdrawals: Your financial institution may limit the number of “convenient” withdrawals and transfers you can make.
• Minimum balance requirements: You may need to maintain a minimum balance to avoid maintenance fees.
• Availability: HYSAs aren’t as widely available as traditional savings accounts, and the accounts with the highest rates are typically available through online-only institutions. If visiting your local bank or credit union branch is important to you, this may not be your best option.

Sweep Accounts

Sweep accounts are what your cash sits in at a brokerage firm while you wait to invest it.

Like traditional and HYSAs, the funds in a sweep account are completely liquid—you don’t have to place a trade or wait for settlement to access your cash.

Rates on these accounts fluctuate based on the rate set by the Fed, just like any other savings account.

Unlike traditional and HYSAs, money in a sweep account is not insured by the FDIC or NCUA.

However, these accounts are still a very safe option because the Securities Investor Protection Corporation (SIPC) protects funds in brokerage accounts up to $500,000, if the brokerage firm becomes insolvent.

Pros

• Interest rates: Rates are comparable to what you’d receive with a HYSA—significantly higher than the interest you’d earn with other liquid savings options.

• Liquidity: You can access cash from a sweep account at any time.

• Low-risk: Sweep accounts are low-risk investments that receive up to $500,000 in SIPC protection.

Cons

• Rate variability: Your interest rate isn’t locked in. Rates on sweep accounts increase and decrease based on interest rate policy.
• Fees: Brokerage firms may charge fees for maintaining a sweep account that eat into investor returns, making other savings options more attractive.

Certificates of Deposit (CDs)

A certificate of deposit is a type of savings account available at traditional banks, credit unions and online banks, but they work differently than a traditional or high-yield savings account.

With a CD, you deposit a lump sum of money into an account for a specific amount of time—known as the term. Your money earns a guaranteed fixed interest rate, and when the CD matures at the end of the term, you can either cash it out or roll it into a new CD.

Terms vary by institution but generally range from one to 60 months.

Unlike a traditional or HYSA, you can’t keep putting money into the account after the initial deposit, and if you withdraw your cash before the term is up, you may have to pay a penalty.

CD rates move in line with the federal funds rate and are typically comparable to or slightly higher than HYSA rates since you agree not to access your funds until the term is up.

However, rates can vary significantly by bank and credit union, so it’s a good idea to do your research and compare rates from multiple institutions.

Short-term CDs tend to have the lowest rates while longer-term CDs typically have higher rates.

Pros:

• Guaranteed return: Fixed interest rates make it easy to budget because you know how much your investment will be worth when the CD matures.
• Low-risk: Like money you keep in traditional savings and HYSAs, CDs are generally insured by the FDIC or NCUA.
• Flexibility: Because CDs are available in varying term lengths, you can choose a maturity date that aligns with your savings goals.

Cons

• Penalties: If you withdraw your money before the CD matures, you typically forfeit a certain number of months’ worth of interest the account has earned, and you may also have to pay a penalty.
• Minimum deposit: A CD may require a larger upfront investment compared to the opening deposit requirements of a traditional or HYSA, although it varies by institution.

Treasury Money Market Funds

Treasury money market funds are funds that invest in short-term government-backed debt securities.

To invest in a Treasury money market fund, you need an account with a brokerage firm rather than a traditional bank or credit union.

When you need cash, you sell part or all of the funds in the account, and your money is available the next day.

Money market funds aren’t FDIC- or NCUA-insured, but they’re protected by the SIPC like sweep accounts.

Pros

• Interest rates: Rates on money market funds are on the higher end compared with other savings options.
• Taxes: Earnings on a Treasury money market fund aren’t subject to local and state taxes.
• Low-risk: Like funds in a sweep account, up to $500,000 is protected by the SIPC.

Cons:

• Funds availability: Because withdrawing your cash from a Treasury money market fund requires you to sell all or a portion of your investment, you don’t have same-day access to your money.
• Fees: Brokerage firms may charge fees on money market accounts that reduce your net returns.

Treasury Bills (T-Bills)

Treasury bills are short-term government bonds that function like cash with maturity dates ranging from four weeks to one year (i.e., 4, 6, 8, 13, 17, 26, and 52 weeks). Like a CD, you make a single payment to purchase T-bills, which are sold in increments of $100.

T-bills are sold at a discount, and when they mature you receive a payment equal to the face value of the bill. The difference between the purchase price and the face value is the “interest” you earn.

Unlike the previous savings options we mentioned, you can purchase T-bills directly from the government at www.treasurydirect.gov or work with a brokerage firm, bank or dealer that can purchase them on your behalf.

Pros:

• Guaranteed return: You know how much money you’ll earn when you purchase a T-Bill.
• Tax benefits: The “interest” you earn on a T-Bill isn’t taxed at the state or local level.
• Low-risk: Backed by the government, T-Bills are one of the safest instruments you can invest in.

Cons:

• Purchasing process: T-Bills are sold at weekly auctions, except 52-week bills, which are auctioned monthly. Investors decide how much they want to spend and purchase a specific dollar amount of T-Bills at the discount rate determined at auction.

Comparing Savings Options

The table below provides a quick overview of each of the saving options we discussed.

Comparing interest rates between different account types and providers can help you identify the options that will provide the best return on your investment.

However, that’s only one factor to consider. It’s also important to think through when you may need to access your funds, how long it will take to make a withdrawal and the risk profile of each account type.

For most people, a HYSA with no fees or minimum balance requirements is probably the best saving option for short-term goals or maintaining an emergency fund to avoid credit card debt when the unexpected strikes.

High-income earners who need to hold significant sums in cash outside of retirement accounts should consider working with an institution that offers extended FDIC coverage, which spreads large deposits across several banks, so your total deposit (even if it’s above $250,000) is FDIC-insured.

If you’re certain about the timing of your needs, CDs may be a good option to consider as some are paying higher interest rates, on average, in exchange for not accessing your cash until the end of the term.

If you’re saving for multiple goals, creating a CD ladder with multiple CDs maturing at different intervals can help you maximize your return.

For investors with assets in a taxable brokerage account or individual retirement account (IRA), it may be worth checking out a sweep account, which may have comparable or higher rates than a HYSA.

If you pay state income tax, especially in higher tax brackets, Treasury Money Market Funds and T-Bills could be worth exploring.

Although pre-tax yields on treasury products tend to be lower than yields on other savings accounts, earnings on these products are state income tax-free, so your net return may be higher than if you chose a product that’s subject to state income tax.

Next Steps

After you’ve evaluated your financial goals, need for cash and risk tolerance, it’s best to take steps immediately to start saving so you can maximize your potential returns.

If you’re not sure where to start or how your cash savings fits into your comprehensive financial plan, a financial advisor can help you develop a personalized savings plan based on your individual goals, timeline and risk tolerance.

Visit our full resource center for more insights from our team.