High-yield savings account vs. CD vs. T-bill: Where's the best place to put your money? (2024)

T-bills have been a popular option lately thanks to their attractive returns in light of rate hikes by the Fed. High-yield savings accounts currently offer rates 10 to 20 times higher than traditional savings accounts, while CD rates have also been on the rise.

All of these savings vehicles could be worth adding to your portfolio, depending on your investment time horizon. But first, it’s important to understand how they work and evaluate their differences to determine which one is best suited for reaching your financial goals.

High-yield savings account vs. certificate of deposit vs. Treasury bill

A high-yield savings account is a type of deposit account that offers a higher APY than you’d find on a traditional savings account.

A CD is a type of time deposit account that requires you to keep your money on deposit for a specified period, known as the term. If you withdraw funds before the maturity date, you have to pay an early withdrawal fee. Often, CDs pay higher rates for longer term lengths.

Treasury bills are short-term securities issued by the U.S. Treasury, with terms that range between four and 52 weeks. They are considered a type of bond, but don’t pay a coupon (interest). Instead, they’re often sold at a discount and provide the full value at maturity.

These are just some of the features you can expect from these investments. Read on for a deeper dive into each.

What is a high-yield savings account?

High-yield savings accounts can be found at many banks and credit unions. The main feature is that they offer an APY much higher than what you’d receive on a traditional savings account. Because of that higher rate, they can be a useful tool for growing savings faster while keeping cash safe.

How high-yield savings accounts work

High-yield savings accounts work similarly to regular savings accounts. You deposit money into the account whenever you want, and the financial institution pays you interest on the balance. You can withdraw money as needed, though some banks may have a limit on the number of withdrawals you’re allowed to make per month, and charge a fee if you exceed that limit. Some banks may also require a minimum opening deposit or minimum balance.

“Essentially, the function is that your money is completely liquid and accessible whenever you need it,” says Autumn Lax, a certified financial planner and financial advisor at Drucker Wealth Management.

Pros and cons of high-yield savings accounts

The main appeal of a high-yield savings account is the higher interest rate. As long as your money is deposited with an FDIC-protected institution (or NCUA in the case of credit unions), your funds are also insured up to the federal minimums, meaning you can’t lose money.

But they can have some downsides worth considering. For one, the interest rate is variable, meaning it can go down. Some banks may also charge fees for these accounts. And though they pay higher rates than traditional savings accounts, you won’t grow your money as quickly as you could by investing in the market.

What is a certificate of deposit?

A certificate of deposit—or CD—is a common type of deposit account that allows you to earn interest at a fixed rate over a specified term length. CD terms can last from a couple of months to several years, with the highest rates often reserved for the longest terms and largest balances.

You can access your money before the CD matures, but you’ll have to pay an early withdrawal fee, which can wipe out your interest earnings. CDs are a good option for people with longer savings timelines who want to grow their money without risk.

How certificates of deposit work

CDs can also be found at most banks and credit unions. When opening an account, you select the term length and add a deposit (depending on the financial institution, a minimum deposit may be required). The interest remains fixed for the entire term. Once the CD matures, you can withdraw your money, plus interest. Alternatively, you may have the option to roll those funds into a new CD.

Pros and cons of CDs

CDs are beneficial because you can be rewarded with a higher rate for keeping your money on deposit longer. Plus, the interest rate is fixed for the full term. So if rates fall while your money is in a CD, you keep earning the higher rate. There’s also no risk to your principal (as long as you stay under the federal limits for FDIC or NCUA protection).

The major drawback of a CD is that your money is locked in and may not keep up with inflation, especially for longer terms. However, depositors can employ strategies to get the most out of a CD, such as opening multiple CDs at different intervals—known as CD laddering. There are also special types of CDs known as bump-up or step-up CDs that permit an interest rate adjustment once during the term.

“It can be the risk that you run, locking your money up for too long,” Lax says. “If you're going out on a CD ladder [over] multiple years, the rate you’re locking into might seem really great now, but we have no idea what the interest rate landscape is going to look like several years from now when that last CD matures.”

What are Treasury bills?

Treasury bills—also known as T-bills—are short-term securities issued by the U.S. Treasury. They’re backed by the federal government and offer terms ranging from four to 52 weeks. T-bills are sold in increments of $100.

How Treasury bills work

When you buy a Treasury bill, you’re lending the U.S. government money. T-bills are often sold at a discount or at par (face value). When the bill reaches maturity, you’ll receive the face value. “You make money by buying them at a discount, and then when they mature, you get in at full value,” Lax says. “So whatever the difference is, is how you make your money.” T-bills can be purchased through the TreasuryDirect portal or through a bank or brokerage.

Pros and cons of Treasury bills

Treasury bills can be a good choice for those looking for a low-risk, fixed-rate investment that doesn’t require setting money aside for as long as a CD might call for. However, you still run the risk of losing out on higher rates and returns if the market is on the upswing while your money is locked in. The good news is that you can sell a T-bill before it reaches maturity without penalty.

How to choose between the three

Lax encourages her clients to look at the bigger picture when deciding how to shape their next investment move. “I always encourage them to look at their money, how it’s geared for different purposes and in different time horizons,” she says.

Lax notes that both CDs and Treasury bills are considered safe harbor investments. But it’s also important to have some money set aside for emergencies in a fully liquid savings account. In other words, your financial situation and the immediacy with which you might need money down the line are the key considerations when picking among this trio. You’ll need to balance earning the highest rates with maintaining a certain level of access to your funds.

Once you have your cash in the right place, Lax says, you can look at building out a well-rounded investment portfolio.

Does a CD, high-yield savings account, or T-bill offer the best rate?

Currently, savings accounts appear to be the best option for high rates with full liquidity. Some of the best high-yield savings accounts are hovering close to 5% APY right now.

Meanwhile, Lax says she’s not really seeing CDs being that competitive. Some of the top CD rates are also around 5% APY, but you have to lock your money in for a year or longer. Similarly, T-bills are paying between 4.4% and 5.25%, depending on the term.

What is the safest option between a CD, a high-yield savings account, and T-bill?

All three options carry a reputation for being highly safe, as your principal is protected from market risk. However, there is some liquidity risk for those who may need immediate access to their money.

“If you buy a six-month CD and you lose your job two months from now, you know that that money is accessible—but not without penalties,” Lax says. “So the high-yield savings…is where I encourage clients to put their cash emergency reserve.”

Frequently asked questions

Still not sure which savings option is right for you? Here are answers to some of the most common questions.

Is a T-bill or high-yield savings account better when saving for a large purchase?

It can depend on when you’ll need the money and what the rates are at the time you decide to start saving. But if you’re trying to save on a month-to-month basis, a savings account may be the best move.

“If you're someone who is needing to save up for a bigger purchase, so you're actively trying to put money aside every single month, then I lean toward having that in a savings account, because you can't add to a CD or a Treasury bill,” Lax says.

Can you sell a T-bill or a CD before it matures?

A Treasury bill holds this ability, and it can be carried out by first making a transfer and then asking a bank or broker to sell it for you. You won’t be charged a penalty, but you may need to pay a commission. The request forms for that can be found here.

A CD, meanwhile, isn’t bought or sold. However, you can choose to cash out a CD before it matures and pay an early withdrawal penalty.

What is a Treasury securities auction and how do I find the results?

This is a public auction held weekly by the U.S. Treasury. It’s the official method for issuing all Treasury bills. The auction is open to individual and institutional investors. There are also 24 primary dealers made up of financial institutions and brokerages that are required to participate.

Those interested in participating can get information about auctions through Treasury Direct.