High-yield savings, CDs, money market accounts and Treasury bills compared: access, insurance, tax and which suits an emergency fund or a known expense.
Cash you will need within a few years — an emergency fund, a house deposit, next year's tax bill — belongs somewhere safe that still pays interest. The four usual choices differ less in rate than in access, insurance and tax. Rates on all of them move with the Federal Reserve's policy rate, so compare current offers rather than any figure in an article.
Usually from online banks, paying more than a typical branch savings account, with money available any time. Rates are variable and can fall. Deposits at FDIC-insured banks are protected up to $250,000 per depositor, per bank, per ownership category. Best for an emergency fund.
A fixed rate for a fixed term, from a few months to several years, with a penalty — often several months of interest — for withdrawing early. Useful when you know when you will need the money and want to lock a rate. A CD ladder splits money across several maturities so part of it becomes available regularly.
A money market account is a bank deposit, FDIC-insured, with some check-writing or debit card access. A money market fund at a brokerage is an investment, not a deposit: generally low-risk but not FDIC-insured. The names are similar; the protection is not.
Short-term U.S. government debt, bought at TreasuryDirect or through a broker, maturing in weeks to a year. The interest is exempt from state and local income tax, which can put T-bills ahead of a savings account for people in high-tax states.
Interest from all of these is taxable as ordinary income in the year it is paid or credited, and you will receive a Form 1099-INT once it reaches $10. Treasury interest is federally taxable but exempt from state and local tax.
Emergency fund: a high-yield savings account or an insured money market account. A known expense on a known date: a CD or Treasury bill maturing just before it. Money you will not need for five years or more: consider investing it instead, because cash tends to lag inflation over long periods.
You may also find this useful: Interest Income.
Tax rules, limits and pay data change. Check the current figures with the primary source before acting on them.