Key Takeaways
- Cash in a big-bank checking or savings account often earns close to nothing. Moving it to a high-yield savings account, a money market fund, or Treasury bills can raise the yield substantially with no meaningful change in safety.
- The three options differ on insurance, taxes, and access. High-yield savings is FDIC insured and simple. Money market funds are not insured but are highly liquid and sit next to your investments. Treasury bills are backed by the federal government and exempt from state income tax.
- For a Georgia resident in a high bracket, the state tax exemption on Treasury interest can make T-bills or a Treasury-only money market fund the best after-tax choice even at a slightly lower stated yield.
- A tiered structure works well: a month or two of spending in checking, the emergency reserve in high-yield savings or a money market fund, and known future expenses in a short Treasury bill ladder.
High earners tend to accumulate cash without deciding to. A bonus lands, a quarterly distribution arrives, a house sale closes, and the checking account balance drifts up into six figures while life stays busy. Meanwhile the bank pays a fraction of a percent on it. Deciding where to hold cash is not a glamorous financial question, but for a household with $100,000 or more sitting idle, the difference between a near-zero yield and a competitive one is thousands of dollars a year.
The good news is that the choices are simple and safe. High-yield savings accounts, money market funds, and Treasury bills all offer yields that track short-term interest rates, with different trade-offs on insurance, taxes, and how quickly you can reach the money. None of them will make you rich. All of them beat leaving cash where it happens to have landed.
This guide compares the three options, explains how taxes change the answer for Georgia residents in high brackets, lays out a tiered structure for organizing cash, and covers the most common mistakes. It is educational; the right mix depends on how much cash you hold and what it is for.
The Three Main Places to Hold Cash
Each option holds your money in a slightly different form. Knowing what you actually own is the first step.
High-Yield Savings Accounts
A high-yield savings account is a bank deposit, usually at an online bank with low overhead, that pays a rate many times higher than the national average for savings. It is FDIC insured up to the coverage limit per depositor, per bank, per ownership category. Deposits and withdrawals are simple, typically by electronic transfer that clears in one to three business days.
The rate is set by the bank and can change at any time. Online banks compete for deposits, so rates tend to track the federal funds rate closely. Interest is fully taxable at both federal and state levels. The Consumer Financial Protection Bureau has an overview of savings accounts at consumerfinance.gov.
Money Market Funds
A money market fund is a mutual fund that holds very short-term, high-quality debt: Treasury bills, government agency paper, and, in some funds, bank certificates and commercial paper. It aims to keep a stable value of one dollar per share and pays out the interest it earns. Because it is a fund and not a deposit, it is not FDIC insured. It is regulated by the SEC under rules designed to keep it stable, and government-only money market funds are considered among the safest investments outside insured deposits. Investor.gov explains the categories at investor.gov.
Money market funds live inside brokerage accounts, which makes them the natural home for cash that sits alongside investments. Many brokerages sweep uninvested cash into one automatically, though the default sweep fund often pays less than the best money market fund on the same platform. Switching to a higher-yielding one is a five-minute task that is frequently worth real money.
Tax treatment depends on what the fund holds. A fund that holds mostly Treasuries passes through interest that is largely exempt from state income tax. A prime fund holding commercial paper does not. Fund companies publish the percentage of income from US government obligations each year for exactly this reason.
Treasury Bills
Treasury bills are short-term debt of the US government, issued in maturities from four weeks to one year. You buy them at a discount and receive face value at maturity; the difference is your interest. They are backed by the full faith and credit of the United States, which for practical purposes means no credit risk. Interest is exempt from state and local income tax and taxable federally.
You can buy T-bills at auction through TreasuryDirect or a brokerage account, and sell them before maturity on the secondary market through a brokerage if plans change. Many investors set up a rolling ladder of four-week or thirteen-week bills, with each maturing bill reinvested automatically, which keeps cash continuously invested and accessible within a few weeks.
Comparing Yield, Safety, Taxes, and Access
The three options tend to pay similar yields before tax because they all track the same short-term rate. The differences show up in the details.
- Yield. All three move with short-term rates. High-yield savings rates are set by banks and can lag rate changes in both directions. Money market fund yields adjust within days. T-bill yields are set at auction and locked for the term of the bill.
- Safety. High-yield savings: FDIC insured. Government money market funds: not insured, but backed by Treasury and agency holdings. T-bills: direct government obligation. All three are appropriate for emergency reserves.
- State taxes. Savings interest: fully taxable. Money market funds: depends on holdings; Treasury-only funds are mostly state-exempt. T-bills: fully state-exempt.
- Access. Savings: one to three business days by transfer. Money market fund: same-day within the brokerage, one to two days to an outside bank. T-bills: at maturity, or sold on the secondary market in a day or two.
- Effort. Savings: open an account and link it. Money market fund: choose the right fund in an existing brokerage. T-bills: set up auctions or a rolling ladder, which takes slightly more setup but then runs on its own.
The State Tax Adjustment for Georgia Residents
Georgia taxes interest income at the state income tax rate, which the Georgia Department of Revenue publishes at dor.georgia.gov. Treasury interest is exempt. For a resident in the top federal bracket, that exemption means a T-bill or Treasury money market fund yielding slightly less than a high-yield savings account can still deliver more after tax. Divide the Treasury yield by one minus your state rate to get its savings-account-equivalent yield, then compare.
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A Tiered Structure for Where to Hold Cash
Rather than choosing one option, most households do best with a simple tiered structure that matches each pool of cash to how soon it will be needed.
Tier One: Operating Cash
One to two months of spending in the checking account you pay bills from. This money earns little and that is fine; its job is to absorb the timing gaps between income and expenses without overdrafts. Anything beyond two months of expenses in checking is earning nothing for no reason.
Tier Two: The Emergency Reserve
Three to six months of essential expenses, more for business owners, commissioned earners, or single-income households, in a high-yield savings account or a government money market fund. This is money you hope never to touch and want to reach within a few days if you must. Our guide to how much emergency fund you need walks through sizing it. Splitting the reserve between an online bank and a brokerage money market fund gives you two paths to the money.
Tier Three: Known Future Expenses
Money with a date attached: next April's estimated tax payment, a tuition bill in nine months, a planned renovation, a car purchase next year. This is the ideal use for a short Treasury bill ladder, with bills maturing just before each expense is due. The yield is locked, the state tax exemption applies, and the money cannot be spent by accident. For horizons beyond a year, a bond ladder using Treasury notes extends the same idea.
Everything Else Gets Invested
Cash beyond the three tiers has no job, and cash without a job is a drag on the portfolio. A household that keeps $300,000 in savings earning a competitive yield is still, in most years, giving up the difference between that yield and the long-run return of a diversified portfolio on money it does not need for a decade. Once the reserves are set, the remainder belongs in the investment plan, sized to its actual time horizon.
Special Situations for High Earners and Business Owners
- Large balances above FDIC limits. Spread deposits across banks or ownership categories, or move the excess to Treasury bills and government money market funds, which are not subject to deposit insurance limits at all.
- Quarterly estimated taxes. Business owners and those with large investment income can hold each quarter's estimated payment in a T-bill maturing just before the due date. The IRS sets the dates and rules at irs.gov.
- Business operating cash. Cash inside the business should have its own tiered structure, separate from personal cash. Business money market accounts and Treasury bills work the same way at the entity level.
- Cash inside retirement accounts. The state tax advantage of Treasuries is irrelevant inside an IRA, so choose whichever money market fund pays the most there. Cash held long-term in a retirement account is usually a sign that an allocation decision has been deferred.
- Brokerage sweep defaults. Check what your uninvested brokerage cash is earning. Default sweep options at some large firms pay far below the best money market fund on the same platform.
Common Cash Mistakes
- Leaving six figures in a big-bank savings account. The most expensive and most common mistake. It costs thousands a year in forgone interest.
- Chasing the highest rate every month. Moving money between banks for an extra tenth of a percent is rarely worth the effort. Pick a competitive option and leave it.
- Confusing a money market fund with a money market deposit account. The first is a brokerage fund, not insured. The second is a bank deposit, FDIC insured, and often pays less. Both are fine; know which you have.
- Holding a year or more of spending in cash without a reason. Beyond the emergency reserve and known expenses, cash is a drag.
- Buying long-term bonds or CDs for money you need soon. Cash for the next year belongs in instruments that mature in the next year. Longer maturities add price risk the money does not need.
Where to hold cash is a small decision that pays off every month it is made correctly. High-yield savings, money market funds, and Treasury bills are all safe, all liquid, and all far better than a big-bank account paying nearly nothing. Layer them by purpose, take the state tax exemption seriously if you are in a high bracket, and set a limit on how much cash you hold so the rest can do its real job in the portfolio. If you would like help organizing your own cash and deciding how much is enough, contact us.
Frequently Asked Questions
What is the best place to hold cash?
For most households, a mix works best: one to two months of spending in checking, the emergency reserve in a high-yield savings account or government money market fund, and known future expenses in short Treasury bills. All three are safe and liquid; the differences are in insurance, state tax treatment, and how quickly you can reach the money.
Are money market funds safe?
Government money market funds hold Treasury and agency securities and are considered among the safest investments outside of insured bank deposits, though they are not FDIC insured. They are regulated by the SEC under rules designed to keep their value stable. For an emergency reserve, a government money market fund is a reasonable choice.
Is a high-yield savings account better than Treasury bills?
It depends on your state tax bracket and how much effort you want to spend. Savings accounts are simpler and FDIC insured. Treasury bills are exempt from state income tax, which for a Georgia resident in a high bracket can make them the better after-tax choice even at a slightly lower stated yield. Many households use both.
How much cash should I keep?
Enough for one to two months of spending in checking, three to six months of essential expenses as an emergency reserve, and any known expenses coming in the next year or so. Beyond that, cash is a drag on long-term returns and should be invested according to its actual time horizon.
Does the FDIC insure money market funds?
No. FDIC insurance covers bank deposits, including savings accounts and money market deposit accounts at banks. Money market mutual funds held at a brokerage are not deposits and are not insured, though government money market funds carry very low risk because of what they hold.
Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend
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