You feel smart because you moved your money from a big bank (paying 0.01%) to a High-Yield Savings Account (HYSA) paying 3.8%.
Good job, but in 2026, you are still leaving money on the table.
Wealthy investors and corporations don't use savings accounts. They use Money Market Funds (MMFs).
Currently, top MMFs are paying roughly 4.8% APY (Net Yield).
On a $50,000 emergency fund, that 1% difference is $500 of free money every year that you are donating to your bank.
Disclaimer: MMFs are investments, not deposits. They are not FDIC insured. Past performance is not indicative of future results.
 |
| Your High-Yield Savings Account is Ripping You Off. |
1. What is a Money Market Fund?
Unlike a savings account held at a bank, an MMF is a mutual fund held at a brokerage (like Vanguard, Fidelity, or Schwab).
It invests in ultra-safe, short-term debt like U.S. Treasury Bills.
It is designed to keep your share price stable at $1.00 while paying out monthly interest (dividends).
2. The "State Tax" Hack (Crucial for CA/NY)
This is the secret weapon, but you must choose the right fund.
Interest from a Bank HYSA is fully taxable at both Federal and State levels.
However, if you buy a "Treasury-Only" MMF, the interest is generally exempt from State and Local taxes.
💰 Real World Math (California Resident)
Assumption: 35% Fed Tax + 9.3% CA State Tax
- Standard HYSA (4.0%): You pay CA tax. Effective Yield = ~2.4%.
- Treasury MMF (4.8%): CA Tax-Free. Effective Yield = ~3.1% (After Fed Tax).
Warning: Standard funds like SPAXX or VMFXX contain "Repos" and are NOT tax-exempt in CA/NY. You must use specific "Treasury" funds (see below).
3. Is It Safe? (FDIC vs. SIPC)
Banks use fear to keep you: "We have FDIC insurance!"
MMFs do not have FDIC insurance.
The Risk: In extreme crises, a fund's value could theoretically drop below $1.00 ("Breaking the Buck"), though this is incredibly rare for Government funds.
The Protection: Brokerages have SIPC coverage (up to $500k) which protects you if the brokerage firm goes bankrupt and steals your assets.
In 2026, holding a Treasury MMF (backed by the US Govt) is arguably safer than holding cash in a regional bank balance sheet.
4. Top Funds to Watch (Know the Difference)
You can buy these in your brokerage account. Pay attention to the "Tax Status" column.
| Brokerage | Ticker | Best For... |
|---|---|---|
| Vanguard | VUSXX (Treasury Money Market) |
High Tax States (CA/NY) Mostly State Tax Exempt. |
| Fidelity | FDLXX (Treasury Only) |
High Tax States (CA/NY) State Tax Exempt. |
| Fidelity | SPAXX (Govt Money Market) |
No State Tax Issues Default fund, easy to use. |
| Schwab | SNSXX (Treasury Series) |
High Tax States (Note: SWVXX is NOT tax exempt). |
5. Liquidity: Is It Hard to Withdraw?
Not anymore.
With modern brokerage accounts, liquidity is nearly instant.
Funds generally settle in 1 business day (T+1). Some brokers (like Fidelity) even let you "Auto-Liquidate," meaning you can use your debit card and it automatically sells the MMF to pay for your coffee.
Stop Being Lazy with Your Cash
Banks rely on your laziness to make profit.
They take your money, invest it in Treasuries at 4.8%, and pay you 3.8%. They keep the difference.
Cut out the middleman. Open a brokerage account and park your emergency fund in the right Money Market Fund today.
Helpful Resources:
Vanguard: Money Market Rates & Tax Info
Fidelity: Core Position Explained
0 Comments