Best Money Market Funds vs. High-Yield Savings vs. T-Bills in Mid-2026: Ranked by Real After-Tax Return, Liquidity, and Risk

Comparing After-Tax Real Returns Across Cash Options

If you’re parking cash in a high-yield savings account earning 4.21% and you live in California, your real after-tax return is roughly 0.07%. Not 4.21%. Not even 2%. Seven basis points, after federal tax, state tax, and inflation take their cuts.

That number caught me off guard when I first ran it. The financial media loves to compare gross yields side by side, as if a 4.21% HYSA and a 3.61% T-bill are obviously different products with obviously different returns. They’re not, once you account for the tax treatment that varies dramatically by state and by fund. In some cases, the “lower-yielding” option puts more money in your pocket.

What follows is a three-way comparison of money market funds (specifically VMFXX, VUSXX, SPAXX, and FDLXX), high-yield savings accounts, and 3-to-12-month Treasury bills, ranked not by the number on the label but by real after-tax, after-inflation yield at multiple state tax rates. I’ll also cover liquidity differences and insurance coverage, and I’ll say which instrument makes sense for an emergency fund versus idle brokerage cash versus a known expense coming in six months.

Quick rate snapshot for mid-2026: The Fed is holding at 3.50%–3.75%. Top HYSA rates range from 4.21% (Axos, unconditional) to 5.00% (Varo, with conditions) to 4.50% (SoFi with direct deposit). T-bill coupon-equivalent yields sit around 3.54%–3.62% for 3-to-6-month maturities, per the U.S. Treasury’s daily rate data. Money market fund SEC yields run from 3.26% (SPAXX) up to 3.61% (VUSXX), according to YieldFinder’s May 2026 data.

The spread between those numbers looks meaningful. Once you do the tax math, it often isn’t. Sometimes it inverts entirely.

The State-Tax Variable That Changes Everything

Most comparisons treat all these instruments as if they’re taxed identically. They’re not, and the gap is large enough to flip the ranking depending on where you live.

HYSA interest is fully taxable at both the federal and state level. Every dollar of interest shows up on your 1099-INT and gets taxed as ordinary income.

T-bill interest is exempt from state and local income tax. This is baked into federal law. If you live in Texas, Florida, or another state with no income tax, this advantage is worth zero. If you live in California (top marginal rate 13.3%), New York (up to 10.9%), or New Jersey (up to 10.75%), it can be worth hundreds of dollars per year on a modest balance.

Money market funds fall somewhere in between, and this is where most people get tripped up. The state-tax exemption depends on what percentage of the fund’s income came from U.S. government obligations (the GOI percentage). This number changes every year, varies by fund, and several states impose a minimum threshold.

Here’s where the landmine sits: Fidelity’s SPAXX, the default cash sweep for millions of brokerage accounts, had a GOI percentage of only 50.90% in 2025. That’s enough to qualify for a partial state exemption in most states, but California, Connecticut, and New York require that 50% of the fund’s assets at each quarter-end consist of government obligations. SPAXX failed that test in 2025, meaning residents of those three states got zero state-tax exemption on their SPAXX earnings. If you held $100,000 in SPAXX and earned roughly $3,260 in interest, a California resident paid an extra $303 in state tax that could have been avoided with a different fund.

The fix is straightforward but not automatic. Fidelity’s Treasury Only Money Market Fund (FDLXX) had a GOI percentage of 98.67%, clearing every state threshold easily. The catch: you can’t set FDLXX as your core position at Fidelity. You have to set up recurring purchases manually.

On the Vanguard side, VMFXX (the default sweep) came in at 66.61% GOI in 2025, comfortably passing the CA/CT/NY threshold. But VUSXX (Vanguard Treasury Money Market) hit 100% GOI. Both funds returned essentially the same gross yield in 2025 (4.22% vs. 4.23%), which means VUSXX was strictly better after tax in every state that has an income tax, for no sacrifice in gross return.

Think of it like two gas stations across the street from each other charging the same price per gallon, except one gives you a tax credit at the pump. You’d always pick that one. Yet most Vanguard brokerage holders leave their cash in VMFXX by default.

One thing to know: To claim the state exemption, you typically need to manually adjust your state tax return. TurboTax and similar software won’t auto-detect the GOI percentage. Look for the checkbox that says “A portion of these dividends is U.S. Government interest” when entering your 1099-DIV.

Real After-Tax Yield: The Actual Math

I’ll use a $50,000 balance, four state-tax scenarios, a 22% federal marginal rate (the most common bracket for people with meaningful savings), and core PCE inflation at 2.8% (the consensus estimate tracking through early 2026, per Carry.com’s rate analysis).

Gross yield assumptions (mid-2026 rates):

• HYSA: 4.21% (Axos unconditional rate; for conditional rates like Varo’s 5.00%, see our full HYSA rankings)
• T-bill (26-week): 3.61% coupon-equivalent
• VUSXX (Treasury money market): 3.61% SEC yield, 100% state-exempt
• SPAXX (Government money market): 3.26% SEC yield, 0% state-exempt in CA/CT/NY

Scenario 1: No state income tax (TX, FL, NV, WA, WY)

Winner in zero-tax states: HYSA, clearly. The 60-basis-point gross advantage over VUSXX carries through entirely. The state-tax exemption on Treasuries is worthless here.

Scenario 2: Moderate state tax (~5%, e.g., Arizona, Colorado)

*SPAXX: 50.90% exempt in most states outside CA/CT/NY, so state tax applies to 49.1% of income.

HYSA still wins, but the margin narrows to 25 basis points.

Scenario 3: High state tax (~9.3%, California)

The gap between HYSA and T-bills/VUSXX collapses to 7 basis points. And this is using Axos’s unconditional 4.21%. If your HYSA is paying 3.80% or 3.90% (common among accounts that quietly dropped rates), the T-bill or VUSXX already wins outright.

Scenario 4: Very high state tax (~13%, top CA or NYC bracket)

At 13% state tax, the HYSA’s net yield drops to roughly 2.73%, while the T-bill/VUSXX net stays at 2.82%. The T-bill wins despite a lower gross rate. This dynamic is illustrated well by Chandler Nguyen’s worked example: $20,000 in California at 9.3% state tax, a 4.0% HYSA nets $725.60 after state tax, while a 3.7% T-bill nets $740.

The uncomfortable result running through all four scenarios: SPAXX is the worst option in every single one. Lower gross yield than HYSAs, incomplete state-tax exemption, and in CA/CT/NY, no exemption at all. If you have significant cash sitting in SPAXX and you live in a high-tax state, you’re leaving real money on the table for no good reason.

Liquidity and Insurance

Access speed and account protection matter as much as yield. Here’s how the three options actually compare.

FDIC insurance (HYSAs and bank money market accounts): Covers $250,000 per depositor, per bank, against bank failure. This is the gold standard for safety of principal. Your money is there tomorrow, period.

SIPC coverage (money market funds at brokerages): Covers up to $500,000 per customer if the brokerage firm fails. It does not protect against investment losses. For money market funds, the risk of “breaking the buck” (falling below $1.00 per share) is extremely rare, with only a handful of instances in history, but it’s technically possible. The assets in the fund are held separately from the brokerage’s own balance sheet, which adds another layer of protection.

T-bills (TreasuryDirect or brokerage): Backed by the full faith and credit of the U.S. government. No FDIC or SIPC needed because the obligation itself is sovereign. The trade-off is time: T-bills lock your money until maturity (4 weeks to 52 weeks), unless you sell on the secondary market through a broker, which is easy but means you might get slightly more or less than face value depending on rate movements since purchase.

Liquidity in practice:

• HYSA: Same-day or next-business-day ACH to your checking account. Some accounts like SoFi offer instant internal transfers. No penalties, no lock-up. Most liquid option, full stop.
• Money market funds (VUSXX, FDLXX, VMFXX, SPAXX): Typically settle T+1. If held in a Fidelity Cash Management Account or similar, you can often spend directly via debit card or bill pay while the fund auto-liquidates shares. Close enough to a bank account for most purposes.
• T-bills: Locked until maturity if held at TreasuryDirect. At a brokerage (Fidelity, Schwab, Vanguard), you can sell on the secondary market any business day with T+1 settlement. Not instant, but not a big deal if you’re planning ahead.

For a deeper look at the structural differences between money market accounts (the bank product) and high-yield savings, including check-writing access and business-use considerations, see our full MMA vs. HYSA breakdown.

Which Instrument for Which Job

Different cash needs call for different tools. The answer depends entirely on what the money is supposed to do.

Emergency fund (3-6 months of expenses)

HYSA. The priority here is instant access with zero chance of principal loss. FDIC insurance, no lock-up, same-day transfers. You don’t want to be selling T-bills at 2 a.m. when your furnace dies in January. If you haven’t sized your emergency fund recently, our emergency fund calculator can help.

One reasonable alternative: VUSXX or FDLXX in a cash management account with debit card access. Nearly as liquid, and better after-tax yield in high-tax states. But honestly, for a pure emergency fund, I’d take the simplicity of a dedicated HYSA over fiddling with money market funds.

Idle brokerage cash (money between investments)

In high-tax states (CA, NY, NJ, CT): VUSXX (Vanguard) or FDLXX (Fidelity). The 100% state-tax exemption on a Treasury-only fund beats VMFXX and absolutely beats SPAXX. The gross yield difference between VUSXX and VMFXX is negligible (3.61% vs. 3.55% as of May 2026), but the after-tax difference at a 9.3% state rate on a $100,000 balance is roughly $310 per year. It’s a five-minute account change for $310.

In zero-tax states: VMFXX or SPAXX are fine. The state-tax exemption has no value here, so pick whichever your brokerage defaults to.

If you’re in CA, CT, or NY and you haven’t already swapped out of SPAXX, that’s probably the highest-return-per-minute task on this list. Set up recurring FDLXX purchases and move on. For context on brokerage account setup, see our guide to the best brokerage accounts.

Known future expense in 1-12 months (tax bill, tuition, down payment)

In high-tax states: A T-bill ladder. Buy 4-week, 13-week, and 26-week bills timed to mature when you need the cash. Set them to auto-roll on TreasuryDirect if you want hands-off management, or buy through your broker for secondary-market flexibility. The 100% state exemption and government backing make this a clean holding pen for money with a known exit date.

In zero-tax states: HYSA, since you keep the full gross rate advantage and maintain instant access if your timeline shifts.

The common mistake I see is buying a 52-week T-bill for money you might need in 4 months. Yes, you can sell early on the secondary market, but if rates have risen since you bought, you’ll take a small loss. Match the maturity to the expense date. It’s not complicated, people just don’t think about it.

What You Can Do This Week

Check your default sweep fund. Log into your brokerage and look at what’s holding your uninvested cash. If it says SPAXX and you live in California, Connecticut, or New York, you’re paying an avoidable tax. FDLXX is the Fidelity fix. VUSXX is the Vanguard fix. Neither requires closing your account or changing anything else.

Run your own net-yield calculation. Take your HYSA rate, subtract your combined federal and state marginal tax rate, then subtract 2.8% for inflation. If the number is near zero or negative, you’re treading water. That’s not necessarily a reason to panic (treading water beats the -2.4% real return on a big-bank savings account paying 0.39%), but it should recalibrate your expectations about what “high yield” actually means in 2026.

Claim the exemption you already earned. If you held any money market fund or T-bills in 2025, check whether you claimed the state income tax exemption on your return. Pull up the GOI percentage for your fund (Vanguard and Fidelity both publish annual PDFs), multiply it by your Box 1a ordinary dividends from that fund, and enter the result as U.S. Government interest on your state return. This is money you already earned. You just need to tell your state about it.

Where This Is Heading

The Fed’s dot plot from December 2025 projected one more 25-basis-point cut in 2026, but FOMC members are split: some expect no further cuts, others see two. If rates do fall, T-bill yields will decline first (they track the policy rate most tightly), HYSAs will follow with their usual lag, and money market funds will adjust as holdings mature and reinvest at lower rates.

The relative ranking, though, is fairly stable regardless. The state-tax advantage of Treasuries and Treasury-only money market funds doesn’t depend on the rate level. It depends on where you live, and that won’t change with the next Fed meeting.

If you want to go deeper on the mechanics, the best primary sources I’ve found are MyMoneyBlog’s Vanguard GOI breakdown and their Fidelity equivalent. Both are written for tax season but contain the fund-level detail you need to make the right call for your situation.

There’s a bigger question lurking here too, one I don’t have a clean answer for: if your “high-yield” savings is barely outpacing inflation after taxes, at what point does the liquidity premium stop being worth it, and when should that cash move into something with actual growth potential? I’m genuinely not sure where to draw that line. But it’s the right next question to ask.