High-Yield Savings, CDs, Money Market Accounts and Treasury Bills Compared

Cash you might need within the next few years, such as an emergency fund or money for a house deposit, usually belongs somewhere safe that still pays interest. The four most common options are high-yield savings accounts, certificates of deposit, money market accounts and Treasury bills. They differ mainly in how quickly you can get your money, how the interest works and what protects your balance. Rates change often, so compare current offers before you open anything.

High-yield savings accounts

A high-yield savings account works like a regular savings account but pays a noticeably higher interest rate, and these accounts are most often offered by online banks with lower costs than branch-based banks. You can usually move money to your checking account within one or two business days, and the rate can rise or fall at any time as interest rates in the wider economy change.

Deposits at banks insured by the FDIC are protected up to $250,000 per depositor, per bank, for each account ownership category, and credit unions insured by the NCUA offer the same level of protection. That combination of safety and quick access makes a high-yield savings account the usual home for an emergency fund.

Certificates of deposit

A certificate of deposit, or CD, pays a fixed interest rate for a set term, commonly anywhere from three months to five years. The rate is locked in for the whole term, which helps when rates are falling, but withdrawing early usually costs a penalty, often several months of interest. CDs carry the same FDIC or NCUA insurance as savings accounts.

CDs suit money you know you will not need until a specific date, such as a down payment planned for next year. Some savers build a CD ladder, splitting money across CDs that mature at different times so that some cash becomes available regularly while the rest earns a locked-in rate.

Money market accounts

A money market account is a bank or credit union deposit account that often combines savings interest with features such as checks or a debit card. Rates are variable and are often similar to high-yield savings accounts, though some accounts require a higher minimum balance. When offered by an insured bank or credit union, a money market account is covered by FDIC or NCUA insurance.

Money market accounts are easy to confuse with money market funds, which are investment funds sold through brokerages. Money market funds generally hold short-term, high-quality debt and aim to keep a stable value, but they are not covered by FDIC insurance.

Treasury bills

Treasury bills are short-term loans to the US government, with terms of up to one year, and they are backed by the full faith and credit of the federal government. You can buy them directly through TreasuryDirect or through most brokerage accounts. Interest on Treasury bills is subject to federal income tax but exempt from state and local income tax, which can make them more attractive than a bank account with a similar rate for people in high-tax states.

If you buy through a brokerage, you can usually sell a Treasury bill before it matures, though the price you get depends on interest rates at the time. Holding it until maturity returns the full face value.

Choosing between them

• For an emergency fund, a high-yield savings account is usually the best fit because the money is insured and available within a day or two.
• For a goal with a fixed date, a CD or a Treasury bill that matures shortly before the date can lock in a rate.
• For larger balances in a high-tax state, Treasury bills may leave you with more after tax than a bank account.
• For cash you want to spend from directly, a money market account with check-writing or a debit card can be convenient.

Whichever you choose, compare the current rate, any minimum balance, any monthly fees and the early-withdrawal rules, and confirm that the bank or credit union is insured before you deposit.

This article is general information and does not replace advice from a qualified professional who knows your situation.