Cash Equivalents
The lowest-risk corner of investing - trading away growth for safety and easy access.
Core Concepts
Six ideas for deciding where your safe money should live.
What counts as a cash equivalent
Places to hold money that are very safe, easy to turn into cash, and barely move in value: high-yield savings accounts, money market accounts, money market funds, Treasury bills, and CDs. They won't make you rich, but they won't crash the week before you need the money either.
What it's for
Money you can't afford to see drop: an emergency fund (a common guideline is 3-6 months of essential expenses) and savings for anything you'll pay for within the next few years, like a down payment, car, or tuition. Money you won't touch for 5+ years usually belongs in stocks or bonds instead.
Where you keep cash matters
Many big banks pay close to 0% on savings, while online high-yield accounts and money market funds often pay several percent. On a $20,000 emergency fund, the difference between 0.01% and 4% is about $800 a year - for the same safety and access.
Know how it's protected
Bank savings, money market accounts, and CDs are insured by the FDIC (or NCUA at credit unions) up to $250,000 per depositor, per institution, per ownership category. T-bills are backed by the U.S. government. Money market funds are not FDIC-insured - they're very low-risk investments, but not guaranteed.
Inflation quietly eats cash
What matters is your real return: interest after taxes and inflation. Earn 4%, pay 22% federal tax, and you keep about 3.1%. If inflation is 3%, your purchasing power barely grows. That's fine for safety money - it's why cash isn't a long-term wealth builder.
Rates float - unless you lock them
Savings accounts and money market rates follow the Federal Reserve up and down, sometimes changing within weeks. CDs and T-bills lock in a rate for their term. If you expect rates to fall, locking some money in a CD keeps today's rate; if rates rise, you'll wish you'd stayed flexible.
Compare Your Options
All five are safe places for short-term money. The differences are where you get them, how they're protected, and how quickly you can get your money out.
| Option | Where to get it | Protection | Access | Rate | Taxes on interest |
|---|---|---|---|---|---|
| High-yield savings account (HYSA) | Banks, often online-only | FDIC / NCUA | Anytime; transfers take 1-2 business days | Variable | Federal and state |
| Money market account (MMA) | Banks and credit unions | FDIC / NCUA | Anytime; may include checks or a debit card | Variable | Federal and state |
| Money market fund (MMF) | Brokerages | Not insured; SIPC only covers brokerage failure | Sell any trading day; cash usually settles next day | Variable | Federal and state (government/Treasury funds may be partly state-tax-free) |
| Treasury bills (T-bills) | TreasuryDirect.gov or a brokerage | Backed by the U.S. government | Matures in 4 weeks to 1 year; can be sold early at a brokerage | Locked until maturity | Federal only - no state or local tax |
| Certificate of deposit (CD) | Banks, credit unions, or brokerages ("brokered CDs") | FDIC / NCUA | Locked for the term (3 months to 5+ years); early withdrawal costs a penalty | Locked for the term | Federal and state |
Emergency fund
A HYSA or money market account. Fully insured, and you can reach it the day something breaks.
Cash inside a brokerage
A money market fund or T-bills. Check what your uninvested cash is earning - some brokerages default to a "sweep" account that pays very little.
Known date, known amount
Saving for a purchase 6-24 months out? A CD or T-bill that matures right before you need the money locks in the rate.
Key Terms
The words you'll see when comparing accounts.
Rates
- APY (annual percentage yield)
- What you actually earn in a year, including compounding. Always compare APY to APY.
- Interest rate vs APY
- The interest rate is before compounding, so it's slightly lower than the APY for the same account.
- 7-day yield
- How money market funds report their current rate, based on the last week's income after fees. It changes daily.
- Promotional rate
- A higher introductory rate that drops after a few months, or only applies up to a certain balance. Read the fine print.
Access
- Liquidity
- How quickly you can turn something into spendable cash without losing value. Savings accounts are highly liquid; a 5-year CD isn't.
- Early withdrawal penalty
- What a CD charges if you pull money out before its term ends, usually a few months of interest. "No-penalty" CDs skip this but typically pay a bit less.
- Brokered CD
- A CD bought through a brokerage. Instead of paying a penalty, you can sell it early to another investor - but the price isn't guaranteed.
- Ladder
- Splitting money across CDs or T-bills that mature at different times (say, 3, 6, 9, and 12 months), so some cash is always coming due soon.
Safety and taxes
- FDIC / NCUA insurance
- Government insurance on bank and credit union deposits, up to $250,000 per depositor, per institution, per ownership category. Joint accounts and multiple banks can extend coverage.
- SIPC
- Protects up to $500,000 (including $250,000 cash) if a brokerage firm fails. It does not protect against investment losses.
- Sweep account
- Where a brokerage automatically parks your uninvested cash. Some pay competitive rates; others pay almost nothing unless you move the money yourself.
- Tax-equivalent yield
- What a fully taxed account would need to pay to match a partly tax-free one. It's why a T-bill can beat a savings account with a slightly higher rate - try it below.
After-Tax Calculator
Compare what your cash actually keeps after taxes in a traditional savings account, a high-yield account, and T-bills. Enter today's rates for the accounts you're considering.
Traditional savings starts at the FDIC national average savings rate (0.38%, October 2026), the T-bill at the 3-month Treasury bill yield (4.11%, October 28, 2026) and inflation at 3.7% (CPI over the last 12 months, September 2026). The high-yield rate is a placeholder - rates change often, so enter what you're actually being offered. Simplified: ignores deductions and assumes all interest is taxed at your top bracket. Results update as you type.
| Option | Interest / year | After taxes | After-tax rate | After inflation |
|---|
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