High-Yield Savings vs. CDs vs. Treasury Bills: Where Should Short-Term Cash Go?

High-Yield Savings Accounts

A high-yield savings account (HYSA) pays a variable rate, usually much higher than a traditional bank savings account, and offers instant or next-day access with no penalty. The rate can fall at any time without notice. In the US, deposits are insured by the FDIC up to $250,000 per depositor, per bank, per ownership category.

HYSAs are ideal for emergency funds and short-term goals where flexibility matters more than locking in a rate.

Certificates of Deposit

A CD locks your money for a fixed term, such as 6 months, 1 year, or 5 years, at a fixed rate. Withdrawing early usually costs several months of interest. CDs are FDIC-insured like savings accounts. They make sense when you know you will not need the money until the term ends and you want to lock in a rate you expect to be higher than future rates.

A CD ladder spreads money across several maturities, such as 3, 6, 9, and 12 months, so part of the money becomes available regularly while still earning term rates.

Treasury Bills

T-bills are short-term US government securities sold at a discount and redeemed at face value, with terms from 4 weeks to 52 weeks. The difference between the purchase price and face value is your interest. They are backed by the US government, and the interest is exempt from state and local income tax, which is a real advantage in high-tax states. You can sell them before maturity at the market price.

You can buy through TreasuryDirect or through a brokerage. Brokerage purchases are often easier and sold more readily, while TreasuryDirect has a simple but dated interface.

A $20,000 Example With Illustrative Rates

Suppose an HYSA pays 4.5%, a 12-month CD pays 4.8%, and a 52-week T-bill yields 4.7%, with a 24% federal tax rate and a 6% state tax rate on interest. These numbers are only for illustration.

HYSA interest: $900, taxed at 30% combined, leaves $630. CD interest: $960, taxed at 30%, leaves $672. T-bill interest: $940, taxed at 24% federal only, leaves $714.4. Despite its middle headline rate, the T-bill wins after tax because of the state tax exemption.

How to Choose

Use an HYSA for money you might need at any time. Use a CD if you want a guaranteed rate and are sure about the timeline. Use T-bills if you are in a high-tax state or want government backing and liquidity at market value. Compare the after-tax yield, not just the stated rate, and check that your total deposits stay within insurance limits.

In a falling-rate environment, locking in a longer CD or T-bill can protect your income. In a rising-rate environment, keeping money flexible in an HYSA or short bills lets you capture higher rates.

Building a Simple Ladder for Short-Term Cash

A ladder spreads a lump sum across several maturities so that some money becomes available every few months. With $20,000, you might buy four $5,000 T-bills or CDs maturing in 3, 6, 9, and 12 months. When the first matures, you reinvest it into a new 12-month instrument, and after a year you hold a 12-month ladder in which one rung matures every quarter.

The benefit is balance. You earn closer to the longer-term rate while keeping regular access to cash, and you reduce the risk of locking everything in just before rates rise. If rates fall, your longer rungs keep earning the higher rate for a while.

Keep a separate HYSA for your emergency fund and use the ladder only for money with a known date, such as a down payment, tuition, or a tax bill. Mixing the two goals makes it tempting to break a CD early and pay the penalty.