Money Market Account vs. Short-Term Treasury Bill: Which Pays More Right Now?

The Big Question: Where Should Your Cash Go?

If you have a chunk of cash sitting on the sidelines — maybe an emergency fund, a down-payment stash, or just money you don’t need for six to twelve months — you’re probably wondering where to park it so it actually earns something. Two options that keep coming up are money market funds and short-term Treasury bills (T-bills). Both are considered low-risk. Both pay interest. But right now, the numbers tell an interesting story.

Here’s a plain-English look at what each one is, what each one pays, and how to figure out which makes more sense for your situation.

What Is a Treasury Bill?

A Treasury bill is a short-term debt security issued by the U.S. government (source). You lend money to the federal government for a set period — anywhere from a few weeks to one year — and receive a guaranteed payment at maturity. T-bills are sold at a discount to their face value; when they mature, you receive the full face value, and the difference is your interest (source).

Because they’re backed by the full faith and credit of the U.S. government, T-bills are considered one of the safest investments available (source).

You can buy T-bills directly through TreasuryDirect or through a brokerage. The minimum purchase on TreasuryDirect is $100, typically in increments of $100 (source). One thing to know about TreasuryDirect: you generally have to hold the bill to maturity unless you transfer it to a broker first (source). Some brokerages offer more flexibility, making it easier to move funds in and out.

T-bill interest is exempt from state and local income taxes (source). That’s a real perk if you live in a high-tax state, because your effective after-tax yield ends up higher than the headline number suggests.

What Is a Money Market Fund?

A money market fund (sometimes called a money market mutual fund) pools money from many investors and puts it into short-term, high-quality debt securities — things like T-bills, commercial paper, and certificates of deposit (source). The goal is to keep the fund’s share price stable (typically $1 per share) while generating modest, steady income (source).

Money market funds are highly liquid — you can generally start earning interest within one business day, sometimes within hours (source). That makes them a popular choice for anyone who wants their cash accessible on short notice.

For taxable money market funds, interest income is fully taxable at the federal, state, and local level. Some funds are structured as tax-exempt, which can reduce that burden (source).

Money market funds are not bank deposit accounts — they are securities. Like other securities held at a brokerage, they may be covered by SIPC protection against brokerage firm failure, but SIPC does not guarantee the value of fund shares the way deposit insurance guarantees a bank balance (source).

What the Rates Look Like Right Now

Here’s where things get concrete. Based on the most recent data available, here’s what short-term Treasuries are yielding:

3-Month T-Bill Rate: 3.83% (as of 2026-06-17)
1-Year T-Bill Rate: 3.98% (as of 2026-06-17)
Weighted-average yield on all outstanding U.S. Treasury bills: 3.69% (as of 2026-05-31)

For context, the 10-year Treasury rate is currently 4.49% (as of 2026-06-17) — so longer-dated Treasuries pay more, but they also lock up your money for much longer and carry more interest-rate risk.

Money market funds don’t have a single published official rate the way T-bills do — each fund sets its own yield based on its holdings. But because many money market funds hold T-bills and similar short-term government securities, their yields tend to track closely with short-term T-bill rates. The weighted-average yield across all outstanding T-bills — 3.69% — gives you a rough sense of what a government-focused money market fund might be holding in its portfolio.

A Quick Side-by-Side

Feature	T-Bill (3-Month)	T-Bill (1-Year)	Money Market Fund
Current yield (approx.)	3.83%	3.98%	Varies; tracks T-bill rates
Liquidity	Hold to maturity (or sell via broker)	Hold to maturity (or sell via broker)	Generally same-day or next-day
State/local tax	Exempt	Exempt	Fully taxable (unless tax-exempt fund)
Safety	U.S. government-backed	U.S. government-backed	Depends on fund holdings
Minimum purchase	$100	$100	Varies by fund/brokerage

The Tax Angle: Why T-Bills Often Win on an After-Tax Basis

This is the part that surprises a lot of people. When you compare T-bill yields to money market fund yields, you can’t just look at the headline numbers — you have to think about taxes.

T-bill interest is exempt from state and local income taxes (source). A standard taxable money market fund, on the other hand, is fully taxable at the federal, state, and local level (source).

Here’s why that matters: if you live in a state with a meaningful income tax rate, a T-bill yielding 3.83% might actually put more money in your pocket after taxes than a money market fund with a similar or even slightly higher headline yield. The higher your state and local tax rate, the bigger that advantage tends to be.

If you’re in a state with no income tax, this advantage disappears — both options are taxed the same way at the federal level, so you’d simply compare the headline yields.

One nuance worth knowing: T-bill interest is subject to a tax rule called OID (original issue discount). According to the IRS, if the total OID on a debt instrument is less than one-fourth of 1% (0.0025) of the stated redemption price at maturity multiplied by the number of full years from the original issue date to maturity, you can treat the OID as zero — this is called the de minimis rule (source). For most everyday T-bill investors, this simplifies reporting and means the interest is just treated as ordinary income at the federal level.

Liquidity: How Quickly Can You Get Your Money?

This is where money market funds have a clear edge.

Money market funds are designed to be highly liquid. You can typically access your money within one business day, sometimes the same day (source). That makes them a natural fit for an emergency fund or any cash you might need on short notice.

T-bills are a bit less flexible. If you buy through TreasuryDirect, you generally have to hold the bill until it matures unless you transfer it to a brokerage account first (source). Some brokerages do offer more flexibility — allowing you to move funds in and out more easily (source) — but in general, T-bills work best for money you know you won’t need until the bill matures.

The good news: with a 3-month T-bill, you’re only locking up your money for about 13 weeks. If your timeline is that predictable — say, you’re confident you won’t need the cash for at least three months — the liquidity difference may not matter much in practice.

Safety: Are Both Options Truly Safe?

Both T-bills and money market funds are considered low-risk, but their safety comes from different places.

T-bills are backed by the full faith and credit of the U.S. government (source). Hold to maturity and there is essentially no risk of losing your principal. There is a potential for loss if you sell before maturity and rates have moved against you, but if you hold to maturity, your return is fixed at purchase (source).

Money market funds aim to maintain a stable $1 per share net asset value (source). In practice, this is almost always achieved — but it is not guaranteed the way a bank deposit is. In rare, extreme market conditions, a money market fund’s NAV can drop below $1 (source). Government money market funds, which hold primarily U.S. government securities, are the most conservative variety.

Both T-bills purchased through a brokerage and money market fund shares held at a brokerage may benefit from SIPC coverage against brokerage firm failure. SIPC protection is specifically against the failure of the brokerage firm, though — it does not protect against investment losses or guarantee the value of your holdings (source).

Who Should Choose What?

There’s no single right answer — it depends on your goals, your state tax situation, and how soon you might need the money.

T-Bills May Be the Better Choice If:

You live in a state with a meaningful income tax rate and want to reduce your state tax bill
You know you won’t need the money for a defined period (3 months, 6 months, or up to a year)
You want the certainty of a U.S. government-backed return, fixed at purchase
You’re comfortable buying through TreasuryDirect or a brokerage

A Money Market Fund May Be the Better Choice If:

You need your cash accessible on short notice — like an emergency fund
You want a hands-off approach where interest compounds and reinvests automatically (source)
You live in a state with no income tax, so the T-bill exemption doesn’t help you
You’d rather skip the process of buying individual bills at auction

The Hybrid Approach

Some people use both. Keep a money market fund as your liquid emergency reserve, and put money you know you won’t touch for a few months into T-bills to capture the state-tax exemption. That way you’re not sacrificing liquidity on money you might genuinely need, while still potentially boosting your after-tax yield on the portion you can set aside.

What About Longer-Term Treasuries?

If you’re willing to go beyond one year, longer-term Treasuries do pay more. The 10-year Treasury rate is currently 4.49% (as of 2026-06-17) — notably higher than short-term T-bill rates. But with that higher yield comes more interest-rate risk: if rates rise after you lock in, the market value of your bond will fall. For money you might need within the next year or two, sticking with short-term T-bills or a money market fund is generally the more prudent approach.

The Bottom Line

Right now, the 3-month T-bill is yielding 3.83% and the 1-year T-bill is yielding 3.98% (both as of 2026-06-17). The weighted-average yield across all outstanding T-bills sits at 3.69% (as of 2026-05-31). Money market funds, which hold many of these same securities, tend to yield in a similar range.

On a pure headline-rate basis, the two options are fairly close. But once you factor in the state and local tax exemption on T-bill interest (source), T-bills often come out ahead for people in higher-tax states. Money market funds win on convenience and liquidity.

The smartest move is to think about what you actually need from this money — and then pick the option that fits. For most people, the answer lands somewhere in the middle: a money market fund for your liquid emergency reserve, and T-bills for any cash you can afford to set aside for a defined period.

This article was researched using official U.S. data sources cited inline and reviewed for accuracy before publishing. It is general information, not personalized financial advice. For decisions specific to your situation, consult a licensed professional.

Data refreshed: 2026-06-22. Editorial accuracy verified for cited sources only.