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I OPENED MY FIRST bank account in the US at a local credit union (CU) close to my workplace. The CU had several convenient offers for employees of our company. With minimal effort, I opened checking and savings accounts, got free checkbooks and a credit card despite having no credit history in the US.
I was so pleased with the convenience that I handled all my banking needs through this CU for many years. That included direct deposit of my salary, payments and withdrawals, a car loan, and certificates of deposit (CDs) as my savings grew. I still maintain my checking account here and occasionally enjoy special favors as a longtime loyal customer.
Eventually, I realized that I earned very little interest from the bank deposits. I shopped around, found other banks with better rates, opened several accounts here and there, and moved my money around.
I felt good about being proactive and getting a better return on my cash reserve. But that feeling was short-lived as I started learning more about personal finance and investments. Tired of chasing yields in bank accounts, I eventually embraced US Treasurys (debt issued and backed by the US Government) as my alternative to savings accounts and CDs.
For those unfamiliar with US Treasurys, think of them as CDs with maturities ranging from four weeks to 30 years. They’re widely used as a “safe investment” by individual, institutional and even sovereign investors around the world.
There are some key differences, though. Bank deposits are insured only up to $250,000. US Treasurys, on the other hand, are backed by the full faith and credit of the US Government. Therefore, there is virtually no default risk regardless of the investment amount.
Treasury interest rates, both short-term and long-term, are heavily influenced by monetary policy actions of the US Federal Reserve (Fed). Treasury interest rates directly affect many interest rates we encounter in everyday life: bank accounts, CDs, mortgage, car loans, personal and business loans, and so on.
Treasury interest rates are often higher than comparable bank products. Why? Because the intermediary financial institutions take their cut for operational costs and profits. Result? Suboptimal, or sometimes almost non-existent, interest on bank deposits.
But wait. What if I need my money back?
With bank deposits, I can walk in and withdraw cash from my account. If my money is locked in a CD, I may have to pay a penalty for early withdrawal, but I can still access it fairly quickly. What happens if I’m holding Treasurys? Do I need to wait until maturity?
That leads us to another important aspect of US Treasurys: their extremely high liquidity.
I can certainly buy newly issued Treasurys and wait until maturity, but I don’t have to wait for these events. Investors around the world buy and sell Treasurys in the open market every day, making them one of the most liquid investments in existence.
Their liquidity, safety and meaningful return make Treasurys a compelling alternative for both short- and long-term cash reserves.
Sounds interesting? That’s exactly how I felt after doing my own research. All I needed to figure out was the best way to invest in them.
Instead of buying Treasurys directly from the US Treasury, I use my brokerage accounts and buy and sell individual Treasurys or Treasury exchange-traded funds (ETFs) in the open market, just like stocks or funds. (I used to participate in Treasury auctions through the brokerage account to buy new issues and set my holdings to auto-roll upon maturity, but I eventually stopped doing that to keep things simple.)
For annual expenses and short-term cash needs, I like short-term, highly liquid, Treasury ETFs with a practically negligible expense ratio.
For money expected in three to four years, I favor short- and intermediate-term Treasury Inflation Protected Securities (TIPS) ETFs. TIPS have a lower interest rate compared to equivalent regular Treasurys, but their principal is adjusted with inflation, helping mitigate the risk of unexpected inflation.
For cash reserves further into the future, five years or more, my preference is a ladder of individual TIPS bonds, each maturing in a specific future year. Bond trading is slightly more involved than ETFs or stocks, so target-maturity TIPS ETFs can also be a reasonable alternative despite their slightly higher management fees.
Is there a catch compared to keeping money in conventional bank accounts?
I can’t think of any, but there are two noticeable differences worth understanding.
First, unlike money sitting in bank accounts, Treasury investments fluctuate in value because they constantly change hands in open markets. For short-term Treasurys, the fluctuations are usually tiny. For intermediate- and long-term Treasurys, the swing can be more noticeable, especially when there’s a major change in the interest rate expectation. Thankfully, these fluctuations are usually modest, and over time Treasurys often come out ahead compared to bank deposits.
The second difference deserves a bit more attention.
With a bank account, you can get hold of your money almost immediately. Treasury investments, however, may take a couple of business days to turn into spendable cash. You need to sell the ETF or bond during market hours. Once the transaction settles, usually the next business day, the proceeds can then be transferred out to the checking account for spending. In some cases, you may be able to carry on your spending activities directly from the brokerage account.
Over time, I shifted most of my liquid savings to Treasurys because of the improved result. Yet I still see many people leaving large cash balances in bank products or chasing yields from one bank to another.
I suspect the main reason is simple: lack of familiarity with US Treasurys.
Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.
One of my biggest attractions to U.S. Treasuries is that they are state tax-exempt. I use VBIL instead of a HYSA.
For myself in D.C., that is 9.25% in tax I’m avoiding.
MUNIs like VTEB, although much more volatile, are federal tax-exempt. I have an allocation of VTEB for longer-term emergency funds. The federal marginal tax rate on what I’m saving there is 35%
Both are in a taxable brokerage account. Obviously they lose their advantage in retirement accounts like IRAs and 401(k)s as they are tax exempt or deferred.
Thanks for a great post, and for helping the cause of financial education through Dollar Mentor. It looks like a worthy effort.
For simplicity for my fixed income sleeve, I like VUSXX for 1-2 years of cash: $1 NAV, highly liquid and 100% state tax exempt. Then for more duration using a mix of short- and intermediate-term treasuries and investment-grade corporate bonds: VGSH, VGIT, VCSH, VCIT.
Sanjib thank you. I learned a lot from your post. I clicked on Dan’s link to your non profit and see a couple of articles there I want to read. I always appreciate you trying to teach those of us HD friends who are still learning and don’t know as much. Not all of us were business people and know all the terms used here on HD. Chris
Thank you for your kind words, Chris. I’m still learning how to write in non -wall-street language. The HD style guide and numerous editing tips from late Jonathan have been immensely helpful.
Living in a high tax state, US treasuries also work best for me because of the
savings on state taxes.
That’s an excellent point. Since we don’t have a State tax, it isn’t much a benefit for me (yet) but for those who do, this is an extra sweetener.
Sanjib, thanks for another useful and educational article. If you don’t mind, I’m going to give your non-profit, https://www.dollarmentor.org/ a plug. Lots of good stuff there.
Thanks for the link. Just took a look and the site looks great.
Congrats to you, Sanjib, on this very worthwhile project.
Thank you, Andrew. We plan to add some more easy-to-use tools late this year on the site to make it more useful.
Thank you so much, Dan. Much appreciated!
Hi Sanjib – regarding this point you made: “For annual expenses and short-term cash needs, I like short-term, highly liquid, Treasury ETFs with a practically negligible expense ratio.”
Can you share the specific short term treasury ETFs you use? thanks jeff
VGUS, Vanguard Ultra Short (0-6 Mo) Treasury is another good one.
Hello Jeff, I use VTIP quite a bit. Other than that, I’ve tried several 0-3 months and 1-year funds (both Vanguard and iShare versions), I haven’t seen much difference in the offerings (e.g. SGOV/VBIL or SHV).
Since last year, I’ve been curious about VUSB though it’s not treasury and using it. So far, there hasn’t been any surprise with it.
I use more than one fund to avoid the wash sale annoyance (i.e. sell ones bought more than a month ago).
Frankly, I haven’t spent a lot of time to find “the best” short-term fund. I simply use the good-enough funds.
Sanjib, thanks for an excellent article and detailed explanation of your thinking on this.
Most of our cash/liquid assets are in online savings accounts and money market funds, but we also hold some Vanguard Short Term Treasury ETF (VGSH) and Intermediate Treasury ETF (VGIT). Their current SEC yields are 4.21% and 4.00% respectively.
But, and for me a big “but” is that I have a current long term loss on VGIT of 2.19% and on VGSH of 1.25%—and that’s with the dividends reinvested.
Of course, the principal is stable on the savings and MM accounts, and we get anywhere between 3.42% and 4.15% interest.
At this point I’m just not sold on transferring more cash into Treasury ETFs (not to mention that I’m still smarting from the bond crash of a few years ago!).
Thanks, Andrew. I completely understand where you’re coming form.
For annual reserve, I avoid going longer than 1 year duration. My most favorite for slightly longer-term cash is VTIP. Recently, I’m trying out a non-Treasury offering (VUSB), but haven’t formed any opinion yet one way or the other.
If your brokerage has simple steps for Treasury auction participation and auto-roll on maturity, that might be a good thing to try. I’ve used that for quite some time, and it had almost no maintenance headache. I stopped using it simply because of the churn on my overall holdings, but it wasn’t a big deal either.
But, Andrew, from what I’ve seen, brokerages report gains and losses on the shares you own, not considering the dividends paid. Each reinvestment increases the cost basis. Dividends are where you make money in bond funds over the long term.
Randy, thank you for pointing that out. My post was indeed muddled.
So I attempted to get a comparison of total returns, with dividends reinvested, from 6/12/25 to 6/12/26 of VGIT, VGSH, and VMRXX. The last one is a Vanguard money market fund we hold. (One of our online savings accounts actually paid a good bit higher interest over the last year).
This was harder than I expected, so I tried a few AI sites.
Here’s what ChatGPT came up with:
Approx. Total Return (6/12/25–6/12/26):
VGIT~3.7% VGSH~3.4–3.5% VMRXX~3.9%
Here’s what CoPilot came up with:
Summary (6/12/25 → 6/12/26 Total Return, Dividends Reinvested):
Total Return VGIT +3.19% VGSH +3.31% VMRXX +3.96%
And finally, this from Claude:
VGIT (Vanguard Intermediate-Term Treasury ETF): +3.19% — this figure is for the exact period ending 6/12/2026. Year-to-date 2026 it’s actually down slightly (-0.29%), so essentially all of this return came from dividend income/reinvestment plus price gains in the second half of 2025 (VGIT had a strong 2025, +7.34% for the full calendar year).
VGSH (Vanguard Short-Term Treasury ETF): ~3.4% — reported as of 6/8/2026 (a few days before your end date, but close). On a price-only basis VGSH was actually down about -0.5% over the year, so virtually the entire return came from reinvested monthly dividends (the fund yields around 3.9-4%).
VMRXX (Vanguard Cash Reserves Federal Money Market Fund Admiral): ~4.0% — reported as of early June 2026. Since this is a money market fund with a constant $1.00 NAV, this return is essentially pure dividend income compounding monthly — no price appreciation/depreciation component.
ChatGPT is the outlier, showing higher returns from VGIT than VGSH, and I’m pretty sure that’s off base.
But in any event, my current preference for online savings accounts and MM funds over short (& intermediate) bond funds remains. I realize this can all change when the bond market changes, and I’m ready to make adjustments then. From what I understand, the bond market doesn’t swing as fast and as dramatically as the stock market, so I’m thinking I won’t pay as high a price for a wait and see attitude.
Thanks, Randy. I also feel that the “loss due to high duration” gets compensated over time through higher dividends.
“backed by the full faith and credit of the US Government”…faith being the key word there
I like your approach Sanjib and I am doing a similar thing. I try to buy intermediate TIPS and have created somewhat of a ladder of these. I still have one set of CDs with a CU. It would be prohibitively expensive to redeem these now so I will wait for their maturity next year. All my TIPS are in my brokerage account. I used to have several CD accounts at different CUs but simplified things for me and my heirs.
I have enough cash to handle any foreseeable need.
Thanks, Jerry. Yes, your approach is indeed similar to mine, including a few CDs in CU opened a while ago and left alone since then. Most, but not all, of my TIPS are in pre-tax accounts to avoid the ongoing taxation.
I agree that there are other places to keep keep liquid funds other than bank savings accounts. For the last few years I have used Apple savings which is easy to use and funds available at the click of a button (takes a day or two to show up in bank account), current interest rate is 3.4%.
An additional consideration is whether or not to keep treasuries, which are intended for the longer view / asset allocation purposes, in tax deferred accounts to avoid the tax drag as dividends are considered ordinary income in a taxable account.
Another option is municipal bond etfs in taxable accounts. The dividends are not subject to federal income tax but the income does count towards modified adjusted gross income (MAGI) for IRMAA income bracket calculation which is a consideration from 63 years old and beyond.
Thanks, Grant. I don’t have Apple savings (not an Apple user myself :)), but I keep small amounts in Brokerage account (Govt money-market fund) and in Capital One during travel so I can withdraw cash at ATMs. These are small amounts.
The IRMAA consideration is compelling, but I’m a bit unsure about the safety/volatility and liquidity aspects compared to Treasurys. Probably the difference is negligible (i.e., munis may be practically as safe and liquid as Treasurys), but still enough to bother my sleep :).
Grant noted that tax free interest counts toward IRMAA.
Oh yes. Thanks, Randy. Funny how many different “MAGI” calculations are there :).
Thanks for this great info and article Sanjib. Believe it or not, I still like CASH. Internet banks do a good job with Cash, current return is around 3.5%. Treasuries are higher, 90-Day (3-Month T-Bill) 3.78% 1-Year (12-Month T-Bill)3.86% 5-Year at 4.18%.10-Year Note 4.48% 30-Year Bond 4.95%. I will not be here in 30 years, but hope to be here in 10 years. I am sticking with the internet banks, and avoiding all the hassle.
Thanks, William. Your approach makes perfect sense, assuming that the Internet Banks don’t change the interest rates without the clients’ knowledge.
I recently started using a Cash-management account in my brokerage where the CASH can be in Government money-market fund, and the account can be used for many services of a “bank checking account”, including debit card, check-writing and most EFTs. So far, it working well but I haven’t used it long enough to suggest to figure out the downsides.
A few years ago I started investigating bond ladders for SORR protection, and started looking at TIPS and other bonds and bond-like products (CDs and MYGAs) to build one.
Buying TIPS, either from the Fed or on the secondary market, can be a bit daunting. I found a great web-based tool that does the heavy lifting for you. https://www.tipsladder.com/
I first learned about this on Bogleheads. As far as I know, it’s a hobbyist-maintained toolkit and website.
Thanks for your note. I agree that buying TIPS in secondary markets is more involved than buying a stock or ETF. The target-maturity ETFs can be a good alternative at a low cost. I still favor the secondary market, partly because it forces on to learn many nuances about TIPS and gives me more control on which specific one to buy for a given maturity year range. E.g., if there are two candidate TIPS to buy, I favor the one issued earlier to minimize the current “inflation-adjusted” principal. This is to protect against unexpected deflationary risks (TIPS maturity principal is never below the face-value, even if the inflation-adjusted principal turns negative).
“Bank deposits are insured only up to $250,000.”
This is not always the case. For example, there are different rules for accounts in the name of a trust.
According to FDIC: “A deposit owner’s trust deposits will be insured in an amount up to $250,000 for each of the trust
beneficiaries, not to exceed five, regard less of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries. This will provide for a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits.”
NCUA has similar rules for accounts in the name of a trust.
There are also different rules for other types of accounts, for example joint owner accounts.
I enjoyed reading Mr. Saha’s post, and felt additional clarification was needed.
Reference:
https://www.fdic.gov/news/fact-sheets/final-rule-trust-mortgage-accounts-01-21-22.pdf
https://ncua.gov/consumers/share-insurance-coverage
You are absolutely right, Lis. I didn’t get into all the nuances to keep things simple. The point being, there IS an insurance limit however high, whereas the insurance doesn’t apply to US Government debt (hence practically unlimited).
If you have less than $250k, it’s much easier to keep money in a high yield savings account. A few online banks (e.g. American Express, Ally, CapitalOne) have rates currently around 3.2% with Treasuries closer to 4%. But the savings accounts are effortless.
As for inflation indexed securites, I’ve liked them since they were first issued, but you have to believe that the inflation rate adjustment is being calculated without too much downward manipulation by the gov’t to save money on repayment.
Thanks, Cammer. I completely agree with you that “keeping things simple” often outweighs “marginally better interest rate”. That was my guiding principle too, until I actually tried out an alternative and see if there’s any increased overhead at all. I found it practically the same.
As such, I recently started using a cash-management account of my brokerage account and liking it so far. To me, it’s like a checking account for all practical purposes, with the cash sitting in Govt money-market fund (a one-time choice during account setup which can be changed later if needed).