Where to Put Cash Above Your Emergency Fund: T-Bills, Money Markets, or Savings

Keep three to six months of your household’s spending in an FDIC-insured high-yield savings account, and decide where the rest goes by when you will need it. Cash you will spend within about two years belongs in Treasury bills, a government money market fund, or a CD. If you live in a high-tax state, Treasury bills often come out ahead because their interest is exempt from state income tax. Cash you will not touch for five years or more usually belongs somewhere else entirely: high-rate debt, a 401(k) or Roth IRA, or a brokerage account.

A common question Nino members bring us is some version of “I have more cash than I need, so what do I do with it?” The answer starts with defining “need.”

How much cash should you keep in an emergency fund?

Three to six months of spending is the standard planning range. Two things decide where you land in it: how likely your income is to stop, and how much of it is predictable.

Measure the reserve against what you spend, not what you earn. A household earning $400,000 that spends $11,000 a month needs $33,000 to $66,000, not a share of its salary.

Then separate the emergency fund from cash that already has a job. A tax bill due in April and a down payment due next year are not emergency money. They are known expenses with dates, and they should be held for those dates.

Here is how that sorting works for a household that spends $11,000 a month and holds $180,000 in checking and savings:

The $180,000 looked like $114,000 of excess. After the known bills, the excess is $38,000.

Why do high earners with RSUs or bonuses need a different number?

Because the income that stops in a layoff is often the part that does not show up in a paycheck. Unvested RSUs generally end when you leave, many bonus plans pay only if you are still employed on the payout date, and state unemployment benefits are capped at a weekly maximum that replaces a small share of a large salary. If your spending only works with the bonus, your reserve needs to cover the gap between base pay and spending as well as the months without work.

Concentration adds a second risk. If a large share of your net worth is your employer’s stock, a bad year for the company can cut your job and your portfolio at the same time. That is the case for holding the reserve in cash and not counting the stock toward it.

RSUs also create a cash need that people forget to set aside. Under IRS Publication 15, employers can withhold a flat 22% federal rate on supplemental wages up to $1 million in a year. If $200,000 of RSUs vest and your marginal rate is 35%, the gap is 13 points, or $26,000, due by April 15 or earlier through estimated payments. That is the tax line in the table above, and it belongs in cash you can reach on a known date. Why RSUs feel taxed so high explains the withholding mismatch.

Where should you put cash above your emergency fund?

Choose by when you need the money and how much state tax you pay on interest. The table compares the six common options. Rates move constantly, so it shows structure, not yields.

A few details matter more than the table can show.

Treasury bills. TreasuryDirect sells bills maturing in 4, 6, 8, 13, 17, 26, and 52 weeks, in $100 increments. You can buy them at TreasuryDirect or through most brokerages. A bill is sold at a discount, and the difference you collect at maturity is interest. IRS Publication 550 says you generally report that interest when the bill is paid at maturity, so a 26-week bill bought in November 2026 lands on your 2027 return.

Money market funds. A government money market fund, as defined in SEC Rule 2a-7, “invests 99.5 percent or more of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully.” It is not a bank deposit. Funds that hold mostly Treasuries pass more of their income through as state-exempt; funds that hold mostly repurchase agreements pass through less.

I bonds. TreasuryDirect lists a 4.26% composite rate for bonds issued May 1 through October 31, 2026, including a 0.90% fixed rate. A new rate takes effect November 1, so check the page before you buy. The $10,000 annual cap per Social Security number keeps I bonds a side holding for most households with large cash balances.

CDs. A CD pays a fixed rate for a fixed term. It fits a known date, such as a down payment in 18 months, if the penalty for breaking it early would not hurt.

Treasury bills vs. high-yield savings: how much does the state tax exemption save?

Federal law exempts Treasury interest from state and local income tax. Under 31 U.S.C. 3124, “Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State.” Savings account and CD interest gets no such exemption.

To compare them, find the savings rate that leaves you the same after-tax return as the T-bill:

Equivalent savings yield = T-bill yield × (1 minus federal rate) ÷ (1 minus federal rate minus state rate)

Take a married couple in California with $450,000 of taxable income. They are in the 32% federal bracket for 2026, and their income is above the $250,000 joint threshold for the 3.8% net investment income tax, which applies to interest. California’s 2025 rate schedule puts joint taxable income from $145,448 to $742,958 at 9.3%. Assume, for illustration only, that a T-bill yields 4.00% (a round number, not a quote) and that their state and local taxes already exceed the federal SALT cap, so state tax gives them no federal deduction.

The savings account would have to pay 4.68% to match. For a Californian in the top brackets (37% federal, 3.8% NIIT, and 13.3% state on income above $1 million), the break-even rises to about 5.16%. In a state with no income tax, the two compare at face value. New York City residents pay city income tax on top of state tax, and Treasury interest avoids both.

Money market funds sit in between. California, for example, lets a fund pass the exemption through only if at least 50% of the fund’s assets are in exempt obligations at the close of each quarter (Revenue and Taxation Code 17145). Each January, fund companies publish the share of each fund’s income that came from U.S. government obligations. Your preparer needs that percentage to claim the exemption.

For current yields, the Federal Reserve publishes daily Treasury bill rates in its H.15 release, and TreasuryDirect posts results from recent bill auctions.

How are FDIC and SIPC limits different?

FDIC insurance covers deposits “to at least $250,000 per depositor, per ownership category at each FDIC-insured bank.” Your single accounts and your share of joint accounts are separate categories, so a married couple can hold more than $250,000 at one bank and stay covered. Above the limits, spread deposits across banks rather than relying on one.

SIPC covers up to $500,000 per customer when a brokerage fails, including up to $250,000 in cash. It replaces missing securities, such as your money market shares or T-bills. It “does not protect against the decline in value of your securities.”

How is interest on cash taxed?

Interest from savings, CDs, and Treasury bills is ordinary income, taxed at your full federal rate. Money market funds pay dividends, but those dividends come from interest and are not qualified dividends, so they get no capital gains rate. According to IRS Topic 403, you should receive a Form 1099-INT for $10 or more of interest, and you have to report all of it even if no form arrives.

I bond interest is federally taxable but can be deferred until you cash the bond, and it is exempt from state and local tax. Interest also counts toward the 3.8% net investment income tax once your modified AGI passes $200,000 single or $250,000 joint.

When should excess cash go to debt, a 401(k), or investing instead?

Once the reserve is full and the dated bills are set aside, cash that sits for years usually earns less than the alternatives. Work through them in this order:

1. High-rate debt. Paying off a credit card that charges 22% earns exactly 22%, with no risk. No cash account comes close.
2. The full 401(k) match. A match is an immediate return on your contribution.
3. More 401(k) deferrals. The 2026 employee limit is $24,500, per the IRS. If you are below it, raise your payroll deferral and cover the smaller paychecks from excess cash. You move savings out of a taxable account and into a sheltered one.
4. An HSA and a Roth IRA. The 2026 IRA limit is $7,500. Above the income limits for direct Roth contributions, the backdoor Roth is the route in.
5. A taxable brokerage account for goals five or more years out. Over that span a diversified portfolio has time to recover from a decline, while cash loses purchasing power to inflation every year it sits.

Prepaying a mortgage is a judgment call. If your rate is below what a T-bill pays after tax, holding the cash earns more and keeps it reachable. If it is above, prepaying is a certain return, though money in a house is slow to get back out.

How much of your paycheck to save covers the account order in more detail, and managing a windfall covers a sudden cash surplus.

How Nino flags cash above your reserve

Nino connects your bank, brokerage, and retirement accounts and measures your typical month of spending as the median of your full months, so one large purchase does not inflate it. It divides your cash by that figure. When cash covers more than six months, Nino shows the dollar amount above a six-month cushion. It holds that card back if a model reading of the goals you have given Nino finds most of the surplus is set aside for something within the next two years, such as a home purchase. When cash covers less than three months and cash plus a taxable brokerage account cover less than six, it flags the shortfall instead. If a bank has stopped syncing, the card says the figure is an estimate and names the bank to reconnect.

A separate check reads the interest each linked cash account has actually posted and flags accounts earning under 2% on their average balance, when moving the money would earn at least $250 more a year.

Nino does not manage or hold your money. On Advisor plans, from $3,600 a year with federal and state tax filing included, a CFP and CPAs decide with you what the surplus is for and plan the tax side, including the state tax math above. Software plans run $20 to $200 a month. See pricing, or book a free consultation to size your reserve against your own spending.