One thing I’ve come to appreciate during CFP® coursework: the boring “where do I park my cash?” question matters way more than people think. The difference between 0.01% checking and 4.3% HYSA on $20,000 is $860/year. That’s a Roth IRA contribution.
What’s the difference between HYSA, CD, and Treasury bills?
| HYSA | CD | T-bill | |
|---|---|---|---|
| Issuer | FDIC-insured bank | FDIC-insured bank | US Treasury |
| Liquidity | Withdraw anytime | Locked until maturity | Sell on secondary mkt |
| Rate type | Variable | Fixed | Fixed at auction |
| Insurance | $250K FDIC | $250K FDIC | US Treasury (full faith) |
| State income tax | Yes (taxed) | Yes (taxed) | NO state tax |
| Typical 2026 yield | 4.0–4.5% | 4.5–5.0% | 4.3% |
What are the current APYs (January 2026)?
Approximate. Verify on each bank’s site or on bankrate.com / fdic.gov.
- Ally Bank Online Savings: ~4.25% APY
- Marcus by Goldman Sachs: ~4.35% APY
- SoFi Money: ~4.3% (with direct deposit)
- Discover Online Savings: ~4.30%
- Synchrony High Yield Savings: ~4.40%
- 12-month CD (Marcus, Synchrony): ~4.7–4.95%
- 3-month T-bill (US Treasury): ~4.3% via TreasuryDirect or brokerage
- 26-week T-bill: ~4.35%
How does FDIC insurance work?
Per FDIC rules, deposits are insured to $250,000 per depositor, per insured bank, per ownership category. That means:
- Single ownership: $250K
- Joint ownership: $250K per co-owner ($500K for two)
- Trust accounts, retirement accounts: separate $250K each
If you have over $250K cash, split across multiple banks. The 2023 SVB and First Republic crises showed FDIC coverage was rock solid for insured depositors — those above the limit were the ones with issues.
When to use HYSA
- Emergency fund (always accessible)
- Sinking funds for upcoming expenses
- Cash you might need in next 6–12 months
- Idle checking balance over $5,000
The variable rate is the catch — when the Federal Reserve cuts rates, HYSA APYs drop within weeks. Per Federal Reserve open market policy, HYSA rates closely track the federal funds rate.
When to use CDs
- Known future expense with fixed date (down payment 12 months out)
- Want to lock in current rates if you expect rates to fall
- Don’t need access to the money during the term
Standard CDs have early withdrawal penalties — typically 3–6 months of interest if you pull before maturity. No-penalty CDs at Marcus and Ally let you withdraw without penalty after 7 days (slightly lower rate, but real flexibility).
When to use Treasury bills
- You live in a high-state-tax state (CA, NY, NJ, MA, OR, MN) — T-bill interest is exempt from state income tax
- You want max safety (US government backing)
- You have $1,000+ and a TreasuryDirect or brokerage account
- You’re comfortable with auction mechanics
In Massachusetts where I live (5% state tax), a 4.3% T-bill is effectively ~4.52% tax-equivalent versus a 4.3% HYSA. That’s enough to matter.
CD ladder — what is it and when does it make sense?
A CD ladder splits a lump sum across multiple maturities. Example: $10,000 split into five $2,000 CDs maturing 3, 6, 9, 12, and 15 months out. Every 3 months, one matures — reinvest it into a new 15-month CD.
Pros: maintain access to part of your money every 3 months while capturing higher long-term yields.
Cons: more administrative tracking than a single HYSA.
What about Money Market Accounts and Money Market Funds?
Money Market Accounts (MMA) — bank product, FDIC-insured, similar APY to HYSA. Often allows limited check-writing.
Money Market Funds (MMF) — brokerage product, NOT FDIC-insured (SIPC-protected against broker failure, but not against fund losses). Currently paying ~4.5% in funds like Vanguard VMFXX or Fidelity SPRXX. Per SEC rule 2a-7 reforms, MMFs are heavily regulated but historically can “break the buck” in rare cases (2008 Reserve Primary Fund).
For most people: HYSA is simpler, MMA is similar, MMF in brokerage is fine for cash sitting next to investments.
I Bonds — special case
I Bonds (Series I) from the US Treasury have an inflation-linked rate. As of late 2025/early 2026, the composite rate was ~3.1% (down from 9.62% in 2022). Two rules per US Treasury:
- You can’t withdraw for the first 12 months at all
- Withdrawals between 12 months and 5 years forfeit the most recent 3 months of interest
Conclusion: NOT suitable for emergency funds. Possibly suitable for sinking funds with 2–5 year horizons during high-inflation periods.
What I’m actually doing right now
- Emergency fund: Ally HYSA (~4.25% APY)
- Sinking funds (holiday, vacation, car): same Ally HYSA, different buckets
- House down-payment savings (3 years out): mix of 12-month no-penalty CD + 26-week T-bills
- Checking buffer: Bank of America (yes, 0.01%, but I keep only $2K there for bill pay)
FAQ
Q1. Is a HYSA safer than a CD?
Equally safe — both are FDIC-insured to $250K at insured banks. The difference is liquidity, not safety. HYSA = withdraw anytime; CD = locked until maturity.
Q2. Are T-bills really safer than bank deposits?
Slightly. T-bills are backed by the full faith and credit of the US government. FDIC is also a US government agency, but the formal backing structure is one step removed. In practice, both are about as safe as anything in finance gets.
Q3. What about the interest taxes?
HYSA and CD interest is taxed as ordinary income at your federal bracket + state rate per IRS. T-bill interest is taxed federal only — exempt from state and local. In a 5% state tax bracket, T-bills effectively yield 0.2–0.25% more.
Q4. Should I keep money in a brick-and-mortar bank?
Maybe a $1,000–$3,000 buffer for ATM access and rare in-branch needs. Beyond that, online banks dominate on rate. Chase/BofA/Wells Fargo paying 0.01% on savings is a $400+/year cost on a $10K balance vs Ally.
Q5. What happens when the Fed cuts rates?
HYSA rates drop within weeks. CD rates already booked stay locked at their original rate (that’s the point of locking). T-bills auctioned after the cut yield less. Per Federal Reserve guidance, if you expect cuts ahead, lengthening duration via CDs or longer T-bills can lock in current yields.
Related: emergency fund guide, sinking fund method, money-saving tips.