The information presented here is intended for educational purposes only. BW, Inc. does not provide advisory or brokerage services, nor does it recommend specific stocks, securities, or other investments.
When it comes to earning interest on cash that needs to be readily accessible in the short term, Treasury bills and high-yield savings accounts are both safe options. Your liquidity needs will determine which one is the best choice for you.
Treasury bills
Potential interest rate: 4%+
Treasury bills, also known as T-bills, are government-backed investments with varying terms between four weeks and one year. They can be purchased from a bank or brokerage, or directly through TreasuryDirect.gov.
At TreasuryDirect, you have the option to link your bank account to the platform and invest in your chosen T-bill, with the possibility of automatic reinvestment upon maturity.
A newer alternative is the Treasury account, available at select brokerage firms, which handles the purchasing and reinvestment of T-bills on your behalf. BW has partnered with Atomic Treasury to provide a Treasury account. Public, an online broker reviewed by BW, also offers this account option.
One of the advantages of Treasury bills is their low risk and government-backed security, as well as the state and local tax-free interest earnings. Holding the T-bill until maturity is necessary to fully capitalize on the returns, making them suitable for funds that are not immediately needed. Early sale of T-bills may result in less than full value.
Many brokers also offer Treasury exchange-traded funds (ETFs) or index funds that allow investment in a variety of Treasury products.
High-yield savings accounts
Potential interest rate: 4%+
High-yield savings accounts offer higher interest rates compared to traditional bank savings accounts. Many of the banks offering these rates operate online and provide FDIC insurance, ensuring the same level of protection for your funds as physical banks.
Earning 4% or more on your savings can significantly outperform the national average interest rate for savings accounts, currently at 0.42%.
While high-yield savings accounts typically do not offer check-writing or debit card access like most savings accounts, they do allow for easy transfer of funds when needed, maintaining their liquidity.