HYSA vs Money Market Fund: 3 Quotes, 1 Costly Mistake

Updated: October 19, 2026

📅 Originally Published: August 11, 2026 · Earlier amendments: October 14–15, 2026; see update history

Check the cash deadline and protection needs · Compare eligible quotes in dollars

Why the quoted yields are not directly comparable

A HYSA’s annual percentage yield (APY) is a 365-day deposit measure that includes compounding. It helps compare deposit offers, but a variable bank rate is not a forecast. If you use today’s APY, treat it as a scenario input for the chosen horizon. Keep its tier, balance, promotion, and eligibility terms attached to it.

Money market funds can report more than one 7-day yield measure. SEC Form N-MFP reports a series-level 7-day gross yield before shareholder fees and fund operating expenses. It also reports a class-level 7-day net yield using the Form N-1A method. Before using a displayed MMF yield, first identify whether it is gross or net and which share class it covers. Then check how expenses or waivers are reflected. A gross or unidentified figure should not be treated as investor net yield.

Treasury bills use a third quote language. Treasury rules separate discount-rate and investment-rate conventions, which use different formulas and day-count bases. A bare T-bill percentage is not the same as APY. Before a bill enters the comparison, identify its quote convention and days to maturity, or use its actual purchase price and maturity value.

Displayed percentages are not a ranking. Keep each quote type clear, then put every eligible option on the same starting balance and holding-period endpoint. Only after that conversion does the dollar comparison mean what it appears to mean.

HYSA vs Money Market Fund: Start With the Cash Job

Before comparing yields, decide what the cash has to do. If the need date is immediate or uncertain, a fixed-maturity option may not belong in the ranking at all. If the date is known, use that same horizon for every choice.

Where the cash already lives matters too. Moving money out of a bank account is a different operational decision from reallocating idle cash inside a brokerage account. That friction is not part of the quoted yield, so keep it separate from the return comparison.

Then apply the protection filter. A money market mutual fund is an investment and is not guaranteed by the Federal Deposit Insurance Corporation (FDIC). Bank-deposit insurance follows the rules for deposits at an insured depository institution and their ownership capacity. Here, that difference is a screening constraint. Detailed failure-event coverage belongs in the separate SIPC-vs-FDIC analysis.

An option that fails a hard deadline, location, or protection constraint is out, even if its quoted yield looks better. The comparison below is only for choices that still fit the cash job.

The Quote-to-Net-Cash Switch Matrix

The matrix turns three different quote conventions into comparable dollars. Let B be the starting cash balance and h the comparison horizon in days. Every vehicle must use the same B and endpoint. If an input cannot support that endpoint, mark the vehicle ineligible instead of inventing a return.

Start by filtering for eligibility, then identify the quote type and put each surviving choice on the same B and h. Use the formula that matches that quote and apply the sourced tax rules plus any tax rates you supply as assumptions. If the cash is already parked, compare the best eligible alternative with the current holding and calculate Δ_switch. If you are starting fresh, identify the highest modeled net-dollar result among the eligible choices.

Hypothetical comparison: $10,000 for one year

Assume $10,000 already sits in a HYSA and will not be needed for 365 days. Both the HYSA and a candidate MMF meet the reader’s access and protection requirements. A candidate T-bill matures too late and is excluded. These are invented scenario inputs, not product quotes: a constant 3.00% HYSA APY and an identified 4.00% annualized simple 7-day MMF net yield, after fund expenses. Assume no waiver changes, no principal loss, no transfers during the year, and no reinvestment of MMF distributions. The HYSA APY includes its stated compounding; the MMF side deliberately uses a constant simple-yield scenario.

The MMF’s 4.00% is annualized, not a 4% gain every seven days. Its modeled seven-day return is 0.04 × 7 ÷ 365. Extending that same simple rate over 365 days gives 0.04 × 365 ÷ 365 = 4.00%. The HYSA’s one-year return is (1 + 0.03)^365/365 − 1 = 3.00%. On the same $10,000, that is $400 of modeled MMF income versus $300 of HYSA interest.

For this taxable-account illustration only, assume all income is taxed at flat 24% federal and 5% state rates, with no MMF state exemption, no NIIT, no federal deduction for state tax, and tax paid at the horizon. The HYSA leaves $300 × (1 − 0.24 − 0.05) = $213 after tax. The MMF leaves $400 × 0.71 = $284. The modeled switching advantage is $284 − $213 = $71; ending principal plus after-tax income is $10,284 versus $10,213.

Now set the total switching hurdle F at $50: a hypothetical $20 transfer charge plus $30 the reader requires for the inconvenience of moving. The $71 edge clears that $50 hurdle by $21, so the switch passes this scenario’s test. Count a charge once, either in the modeled dollars or in F. If F were $75, stay put; if the MMF failed the protection or access requirement, exclude it regardless of the $71. These results depend on constant rates and the stated income treatment, not a forecast of next year’s earnings.

Run the numbers with your own cash inputs

Once the eligibility screen is done, the calculator can handle the arithmetic. Use only products that still fit the cash deadline, account location, and protection needs; clear a quote field to exclude a vehicle. A T-bill is modeled only when its entered days to maturity match the comparison horizon. The tool does not substitute a made-up early-sale return.

Default provenance, not a recommendation: the 3.40% HYSA APY is an illustrative assumption, not a verified bank offer. The 3.49% MMF input uses the SEC’s June 2026 government-fund aggregate as historical context, not a named fund or share-class quote. The T-bill price is from the August 10, 2026 auction identified below. Replace these inputs with identified current product quotes before making a decision. The 24% federal rate, 5% state rate, and $50 switching hurdle are illustrative assumptions.

How much edge actually clears a $50 switch hurdle?

F becomes actionable when it is translated into a return hurdle. After every product has been normalized and taxed, let e be an annualized simple-equivalent after-tax edge. Over h days, the incremental dollars are about B × e × h/365. Solving for the edge required to recover F gives the break-even test below.

A basis point (bp) is 0.01 percentage point: 100 basis points (bps) equal 1 percentage point. An 81.1-bps annualized edge is about 0.811 percentage points. The example above has a 0.71-percentage-point after-tax edge, or 71 bps.

For example, with $25,000 parked for 90 days, a $50 hurdle requires about 81.1 bps of normalized after-tax edge. A 50-bp edge would add only about $30.82; 75 bps adds about $46.23; 100 bps adds about $61.64. With a $25 hurdle, every number in the table is cut in half; with a $100 hurdle, every number doubles.

The sensitivity range uses the SEC’s dated MMF observations as context. It does not estimate the spread available between current bank accounts and funds. In the SEC’s June 2026 dataset, Tables 4.3–4.4, the asset-weighted 7-day net yield for government MMFs was 3.49%. For that same June observation, the median was 3.40%, and the 95th percentile was 3.60%; these are historical observations, not current quotes. For the grid, 25 to 75 bps is an assumed sensitivity band and 100 bps a stress case, not a measured current spread or a forecast. The raw HYSA and MMF percentages still use different quote conventions, so normalize them before comparing.

Taxes can change the ranking, but not symmetrically

The tax advantage is not the same for every option. In a taxable account, direct Treasury-bill interest is federally taxable but exempt from state and local income tax. Your federal rate remains your own model input. Do not carry this taxable-account rule into a tax-advantaged account without checking the account rules.

An MMF gets no automatic matching state-tax break. A state-tax benefit needs the exact fund and tax year, the qualifying U.S. government-obligation share, and the rule for your state. Without those inputs, leave the MMF state-tax benefit at zero. The adjustment can change the net-dollar ranking, but only among choices that already passed the deadline, location, and protection filters.

Where T-bills fit and where they do not

A direct T-bill is only a conditional third choice here. The cash need date must be known, the bill’s quote type must be usable, and maturity must fit the modeled horizon. When those conditions hold, the bill can compete on after-tax net dollars. When they do not, do not force it into the ranking just because its displayed yield looks attractive.

Early sale is the main boundary to remember. A Treasury bill can be sold before maturity through a bank, broker, or dealer, but the maturity result is no longer locked in. If the bill is held in TreasuryDirect, it must be transferred to the commercial book-entry system before an early sale. TreasuryDirect also requires a newly purchased marketable security to be held there for 45 days before sale or transfer; a 4-week bill matures before that hold ends. Check this access restriction before treating an early sale as available. Account location can therefore add both a waiting period and a transfer step. The sale amount can also change with market prices. A hold-to-maturity calculation therefore cannot be prorated backward and shown as the expected cash from an earlier sale.

Keep the role narrow. This is not a Treasury-ladder guide. It asks whether one bill with a matching maturity belongs beside the HYSA and MMF for the same cash job.

Choose the parking place and set the next recheck

The final choice is not simply the highest displayed quote. It still has to pass the cash-job constraints and, when you are considering a move, your friction threshold.

• Choose the HYSA path when bank-side access or the bank-deposit protection classification is decisive. If the cash already sits in an eligible HYSA, keep it there when the best eligible alternative does not clear F. The same stay-put rule applies to an eligible current MMF or T-bill; it is not a reason to move that cash into a HYSA.
• Choose the MMF path when an investment rather than an FDIC-guaranteed deposit fits the cash job and brokerage location is useful. The displayed MMF yield type must be valid, and its eligible net-dollar edge must clear F when moving already-parked cash. For fresh cash, compare eligible net dollars without a switching hurdle.
• Use a direct T-bill conditionally when the need date is known, the maturity endpoint fits, and the quote or price data are valid. For already-parked cash, its after-tax net-dollar edge must clear F; fresh cash has no switching hurdle. Do not use a hold-to-maturity return for an early-sale case.

Re-run the comparison when the cash deadline changes or the money moves between bank and brokerage accounts. Recheck when a HYSA APY, MMF yield, T-bill quote, auction input, or your tax assumptions change. Also rerun it when new annual MMF government-obligation data appear. Do the same when a product changes its fees, access, liquidity, redemption terms, or protection features.