The Highest Risk Free Yields

The highest risk-free yield you can get on your money today isn’t from a high-yield savings account.

A lot of people don’t know this but the highest risk-free yield you can get on your money today isn’t from a high-yield savings account.

Today, Treasury bills are offering interest rates of around 5%, which is more than almost every high yield savings account that’s available today, including the one from Apple. 

But that’s not all. T-bills have one other benefit that high yield savings accounts don’t have— the income you receive from them is exempt from state and local taxes.

Especially for people in high tax states, this can be a notable benefit. A 5% yield that’s exempt from state and local taxes is equivalent to a 5.26% yield on a fully taxable savings account, assuming a 5% marginal state tax rate.

I’m a big fan of T-bills today, especially since it’s been 16 years since we’ve seen yields on them this high.

But with that said, I don’t think they’re right for everyone.

If you haven’t done it before, buying T-bills isn’t the easiest thing to do. It’s not rocket science, but to buy them you have to either use the TreasuryDirect website—which is clunky—or a standard brokerage account.

And then once the T-bills you buy mature, you have to roll your money over into new T-bills if you want to keep earning interest.  

That’s why for the average person, it might make sense to have someone do that all for you. Funds like the iShares 0-3 Month Treasury Bond ETF (SGOV) manage T-bills on your behalf.

You can buy SGOV using any brokerage account and leave your money there until you need it.

The ETF has an expense ratio of only 5 basis points and it’s currently yielding around 4.7%. Additionally, since it exclusively holds T-bills, the income you get from SGOV is exempt from state and local taxes.

So that’s a great option. Another great option is money market mutual funds.

The Vanguard Treasury Money Market Fund (VUSXX) is yielding around 4.7%. It holds a combination of T-bills and repurchase agreements—which are super safe, but don’t have the tax benefit of T-bills.

So weirdly enough, around half of the income you get from the fund is exempt from state and local taxes, while the other half is not.

Finally, high yield savings accounts and other high-yielding bank products like CDs are a good option too. They might not have the absolute highest yields and they might not give you the tax benefit of Treasury bills, but that might not be a big deal for you.

The difference between $10,000 invested at a 4% yield and a 5.25% yield is $125/year. For a $100,000 investment, it’s $1,250.

You have to decide whether it’s worth it to eke out every last penny you can potentially get or go with an option that’s more convenient for you.

The main thing you want is some place to store your money that offers a decent yield, is risk free and that doesn’t have a bunch of restrictions on what you can do with your money.

T-bills, ultra-short-term Treasury bond ETFs like SGOV, government money market mutual funds like VUSXX, and the Apple high yield savings account all fit that criteria.