Where Your Cash Should Live: Savings Accounts, CDs and Treasury Bills

Every goal in this book, from the emergency fund to the down payment, spends at least part of its life as cash. Where that cash sits decides whether it earns close to nothing or keeps pace with inflation. Moving it is one of the few money decisions that takes an afternoon, carries little risk and pays every month after. This chapter compares the main places to keep cash, explains what to check before you move it, and shows a simple structure that matches each account to a job.

How much the rate really matters

Many large banks still pay a fraction of a percent on ordinary savings, while online banks and credit unions often pay many times that on high-yield accounts. The rate on a savings account is quoted as an annual percentage yield, or APY, which already includes the effect of compounding, so two APYs can be compared directly.

Here is the same balance of $20,000 left for 5 years at two rates.

At 0.5% the balance earns $505 over five years. At 4.0% it earns $4,333. Nothing else changed: the same money, equally safe, in a different account. Savings rates move with the Federal Reserve's policy rate, so neither figure is a promise, but the gap between the lowest and the most competitive accounts tends to persist.

Interest on savings is taxed as ordinary income in the year it is paid, so the after-tax gain is smaller than the figures above. It is still money you would not otherwise have.

What to check before you open an account

A high rate is only one feature. Before moving money, check these.

• Deposit insurance. Bank deposits should be covered by the FDIC and credit union deposits by the NCUA. FDIC insurance covers $250,000 per depositor, per insured bank, per ownership category. Some apps and fintech companies are not banks; they hold your money at a partner bank, and coverage depends on how the accounts are set up. Look for the name of the insured bank in the account terms.
• Fees and minimums. A monthly fee or a minimum balance can erase the advantage on a small balance.
• Teaser rates. Some accounts pay a high introductory rate that drops after a few months. Look at the standard rate.
• Rate caps. Some pay the top rate only up to a certain balance.
• Transfer speed. Moving money to your checking account may take one to three business days. That is fine for most goals, but keep enough in checking for bills.

Once you have a competitive account, there is little point in moving every time another bank pays a little more. A difference of a fraction of a percentage point on a modest balance is worth very little a year, and each move takes time and risks a missed transfer. Stay competitive rather than chasing the top of the table.

Other places for cash, and what each is for

Money market accounts are bank accounts, insured like savings, that often allow a few checks or debit card payments. Rates are usually close to high-yield savings.

Money market funds are offered by brokerages. They invest in short-term debt and aim to keep a stable value, but they are investments, not deposits, so they are not FDIC insured. Funds that hold only government securities carry very little credit risk.

Certificates of deposit (CDs) pay a fixed rate for a fixed term, from a few months to several years. They suit money you know you will not need until a known date, such as a tax bill or a tuition payment. Taking the money out early usually costs a penalty of several months' interest, so check the terms.

Treasury bills are short-term loans to the US government, sold at TreasuryDirect or through a brokerage, with terms from a few weeks to a year. On September 29, 2026, the 26-week bill yielded 4.37%. Their interest is taxed federally but is exempt from state and local income tax by federal law.

Series I savings bonds pay a rate tied to inflation. You can buy up to $10,000 a year electronically per person. They cannot be cashed in during the first 12 months, and cashing them in before five years costs the last three months of interest. They suit money you will not need for a while and want protected from inflation.

Ladders and Treasury bills: the extras

A CD or Treasury ladder splits money across several maturities so that part of it comes due regularly. For example, a sum divided into four equal parts placed in three-, six-, nine- and twelve-month CDs means one part matures every three months. Each time one matures you either spend it on the goal it was meant for or roll it into a new twelve-month term. You earn rates closer to the longer terms while some money is always about to become available. Ladders suit medium-term money; they are not a substitute for an emergency fund that must be available tomorrow.

Treasury bills and state tax. Because bill interest skips state income tax, a bill can beat a savings account that quotes a higher rate. The arithmetic: a savings account paying 4.4% in a state that taxes interest at 9% keeps about 4.0% after state tax, while a bill at the same rate keeps all of it before federal tax. In a state with no income tax the difference disappears. The HYSA vs Treasury bill after-tax calculator does this comparison with your federal and state rates and today's bill yield.

A structure that matches each account to a job

Most people do well with a simple structure, and a few benefit from adding pieces.

Simple:

• Checking: enough for a month or two of bills, so automatic payments never bounce.
• High-yield savings account one: the emergency fund, untouched except for emergencies.
• High-yield savings account two: sinking funds and goals, in named buckets.

Fuller:

• Checking: about one month of bills.
• High-yield savings: the emergency fund.
• High-yield savings with buckets: goals in the next year or two.
• A CD or Treasury ladder: goals with a known date one to three years out.
• Treasury bills: if you live in a high-tax state and hold enough cash for the state tax saving to matter.

Start with the emergency fund, because it is usually the largest pool of cash. For a household with essential spending of $3,500 a month that wants six months set aside and has $8,000 so far:

The target is $21,000, the current cash covers 2.3 months, and $13,000 remains to save. Every dollar of that target should be earning a competitive, insured rate while it waits.