If you think it doesn’t matter where you keep your savings, think again. There are several options for depositing your cash, each with different perks and limitations.
If you choose a money market account (MMA), you’ll have easy access to your money, but the interest rate on the account could drop at any time. With Treasury bills (AKA T-bills), the opposite is true: You can’t access your money as easily, but your rate of return is guaranteed as long as you leave your money on deposit until the maturity date.
As you can see, those two features alone make these accounts useful for very different savings purposes. Here’s everything else you need to know before you decide if an MMA or T-bill is the best destination for your savings.
What is a money market account?
A money market account is a bank account that combines the features of a checking and savings account, but with higher interest rates on average. For example, MMAs often come with checks and/or debit cards for easier access to your funds. They’re also typically insured by the FDIC (or the NCUA if your account is held at a credit union).
Keep in mind, however, that money market accounts often limit the number of withdrawals you can make each month and may also come with higher minimum balance requirements than standard savings accounts.
What is a Treasury bill?
A Treasury bill is a short-term debt security issued by the U.S. Department of the Treasury to help finance government operations. Essentially, it’s like a short-term loan you give to the federal government in exchange for a guaranteed rate of return.
T-bill maturity options range from four weeks to one year, and the rate you earn is determined by the maturity date you choose.
T-bills can be purchased in denominations of $100, with maturity dates of 4, 6, 8, 13, 17, 26, or 52 weeks. You receive your interest when the bill matures. You can also sell early on the secondary market, but your returns will be based on the market price at the time of the sale.
There’s no risk of losing your money if you hold a T-bill until it matures, since the U.S. government guarantees your full deposit and interest.
If you want to buy a T-bill, the first step is to set up a TreasuryDirect account. Rates currently range from 3.61% for 52-week bills to 4.11% for 4-week bills.
Money market account vs. Treasury bill: Key differences
The main difference between MMAs and T-bills is that an MMA is a type of bank account, while a T-bill is a type of investment.
However, if you shop around, you’ll find that some MMAs earn similar rates to T-bills. While the national average money market account rate is 0.59%, some of the best MMAs offer rates over 4% APY. Just keep in mind that, unlike T-bills, the rates on MMAs are variable, meaning they can change at any time.
Here’s a look at how MMAs and T-bills compare overall:
Should you choose a money market account or Treasury bill?
Deciding whether a money market account or a Treasury bill is better for you depends on your financial goals, risk tolerance, and liquidity needs. Here’s what to consider when deciding where to put your savings.
When to choose a money market account
An MMA is a better choice than a T-bill if you need access to your money for upcoming expenses or if you don’t have any savings for emergencies.
By choosing an MMA, you’ll ensure you can make a withdrawal or write a check when you need to use your money without having to face any penalties or lose the interest you’ve earned. Plus, your balance can earn a competitive interest rate compared to some other types of bank accounts.
When to choose a Treasury bill
A Treasury bill is a better choice than an MMA when all of the following are true:
-
Savings: You already have an emergency savings fund that you can access any time you need the money.
-
Timeline: You want to earn interest on money that you don’t plan to spend for the next few weeks to a year.
-
Rate comparison: You can lock in a higher rate by purchasing a T-bill than by depositing your money into an MMA.
Some people also like to buy Treasury bills, versus other low-risk investments like CDs, because they want to support the federal government. When you buy T-bills, the money is used to fund government operations, including things like infrastructure projects and military spending.