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High-yield savings account vs. Treasury bill: Which is right for you?
It was not too long ago that low-risk investments like Treasury bills were the underdogs of the financial world. While T-bills provide a safe place to store your savings while earning a fixed interest rate, they were simply not worth the low returns they offered — especially when compared to the flexibility of savings accounts.
Then, in 2022, something unusual happened: Interest rates started increasing, and they just kept on shooting upward, until the rates on some T-bills, and even savings accounts, passed 5%.
The Fed eventually cut rates in 2024, but rates are still well above 4%. So, anyone who wants to earn a competitive rate on their short-to-mid-term savings would be wise to consider both high-yield savings accounts and T-bills as options.
Which one is best for you: A high-yield savings account or Treasury bill? The answer mainly depends on when you need your money back.
What is a high-yield savings account?
A savings account is a bank account designed to help you save money. These accounts typically earn more interest than checking accounts do, and they're very low risk since most banks insure your deposits up to $250,000.
The downside? Most savings accounts don’t pay much; the national average savings account rate is just 0.45% today. You might earn more interest by leaving your money in a time-bound account like a T-bill or CD, or by investing in the market. Inflation is also likely to outpace your earnings on a savings account.
One way to maximize what you earn on your savings is to use a high-yield savings account (HYSA). These accounts work just like traditional savings account, except they can offer rates as high as 5% APY or more.
See our picks for the 10 best high-yield savings accounts available today>>
What is a Treasury bill?
Buying a Treasury bill is sort of like making a loan to the U.S. government. T-bills pay you guaranteed interest based on the length of time you invest your money. Rates currently range from 4.06% to 4.64% with terms of four to 52 weeks. You can sell a T-bill before the maturity date, but you'll lose some of the interest you would have earned otherwise.
Additionally, unlike savings accounts, you only pay federal taxes (no state taxes) on the interest you earn on T-bills.
Read more: Do I have to pay taxes on my savings account?
Choosing between a T-bill vs. HYSA
If you have cash you don't plan to use for a couple of months or even for several years, either of these options can be a good place to keep it. But they each serve different purposes.
An HYSA is the best choice for your emergency savings or cash you need for an upcoming expense. Unlike T-bills, you can deposit and withdraw funds to and from a savings account at any time (though withdrawal limits may apply).
When it comes to money you can part with for a few months or more, a Treasury bill can be a good choice.
Here are the features you should compare before choosing a HYSA versus a Treasury bill:
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Account fees
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Interest rates
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Fixed vs. variable rates
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Time to maturity
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Taxes on interest
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Limits on deposits and withdrawals
Frequently asked questions
Are Treasury bills better than high-yield savings accounts?
Whether a Treasury bill or high-yield savings account is better for you depends on your goals and how often you need to access your funds.
T-bills are considered very safe because they’re backed by the government. They can also offer yields comparable to HYSAs. One big benefit of T-bills is the interest income is exempt from state and local taxes, which can be a significant benefit for those in high-tax states.
Meanwhile, HYSAs offer more liquidity, making them better for emergency funds or other situations when you need regular access to your money. HYSAs are also FDIC-insured, meaning up to $250,000 of your deposits are protected if the bank fails.
Is there any downside to high-yield savings account?
One of the main downsides to a high-yield savings account is that the rates are variable and subject to change at any time. So, for instance, if the Federal Reserve cuts its target rate, the yield on your HYSA will eventually go down, too.
What is a better investment than Treasury bills?
If you’re looking for alternatives to T-bills with potentially higher returns, one option is a certificate of deposit (CD). These accounts offer fixed rates that can be competitive with or even higher than T-bills. However, CDs have early withdrawal penalties.
For those willing to take on more risk, another option to consider is dividend-paying stocks. These can offer higher returns and some level of income generation, but with much greater volatility than T-bills.
Is it better to buy bonds or high-yield savings accounts?
Deciding between bonds and high-yield savings accounts depends on your risk tolerance, time horizon, and need for liquidity. Government bonds (such as T-bills or T-notes) offer a safe, predictable income, but can tie up your money for several months. The yields might be higher, especially for longer-term bonds, but these also carry interest rate risk if you sell before maturity.
High-yield savings accounts, on the other hand, are perfect for liquidity and short-term savings needs, like emergency funds.
