HYSA vs Treasury Bills: Which Is Better?
Both high-yield savings accounts and Treasury bills are safe places to park your cash. But they work differently, and the best choice depends on your tax situation, liquidity needs, and how long you can lock up your money.
Current Rates
Key Differences
High-Yield Savings Account
- ●Variable rate — can change at any time
- ●Instant access to your money
- ●FDIC insured up to $250,000
- ●Taxable at federal + state level
- ●No minimum deposit at most banks
Treasury Bills
- ●Fixed rate set at auction
- ●Money locked for the term length
- ●Backed by the full faith of the U.S. government
- ●State and local tax exempt
- ●$100 minimum purchase
The State Tax Advantage
One of the biggest advantages of Treasury bills over a HYSA is the state tax exemption. Treasury interest is only taxed at the federal level — it's completely exempt from state and local income taxes.
For someone in a high state-tax state like California, New York, or New Jersey, this can make a meaningful difference. The higher your state tax rate, the more valuable this exemption becomes.
Example
A 4.50% T-Bill in a state with a 10% income tax rate effectively yields the same as a ~5.00% HYSA after accounting for the state tax you'd pay on savings account interest. The higher your balance, the more dollars this saves you.
When to Choose a HYSA
- ●You need instant access to your money at any time
- ●You're building or maintaining an emergency fund
- ●You're comfortable with a variable rate that can change
- ●You don't want to deal with TreasuryDirect or auction schedules
When to Choose Treasuries
- ●You want state and local tax savings on your interest
- ●You're comfortable locking up money for weeks or months
- ●You want the direct backing of the U.S. government
- ●You prefer a fixed rate that won't change during the term
Can You Do Both?
Yes — and many savers do. A common strategy is to use a HYSA for your emergency fund and short-term liquid savings, while putting money you don't need for 3 to 12 months into Treasury bills.
This gives you the best of both worlds: instant access when you need it, plus the fixed rate and tax advantages of Treasuries for money you can afford to lock up.
The Bottom Line
For most savers, a high-yield savings account is simpler and more flexible. You get a competitive rate with no lock-up period and full FDIC insurance. Treasury bills shine for larger balances in high-tax states where the state tax exemption is meaningful — the bigger your balance and the higher your state tax rate, the more you save. Either way, both options are far better than leaving cash in a traditional savings account earning next to nothing.
Frequently Asked Questions
Are Treasury bills better than a HYSA?
It depends on your situation. Treasury bills offer a fixed rate and are exempt from state and local taxes, which can make them more attractive in high-tax states. However, HYSAs provide instant access to your money and don't require you to lock up funds for a set term. For most people, a combination of both works best.
Do you pay state tax on HYSA interest?
Yes. Interest earned on a high-yield savings account is subject to both federal and state income tax. This is one of the key differences compared to Treasury bills, which are only subject to federal tax.
What is the minimum to buy Treasury bills?
The minimum purchase for Treasury bills is $100 through TreasuryDirect.gov. You can buy them in increments of $100 above that. Many brokerages also allow you to purchase T-Bills with similar minimums.
Can I lose money with Treasury bills?
If you hold a Treasury bill to maturity, you cannot lose money. T-Bills are backed by the full faith and credit of the U.S. government. However, if you sell a T-Bill before maturity on the secondary market, it is possible to receive less than you paid if interest rates have risen since your purchase.