Updated October 23, 2026 from live rates
Treasury bills vs money market funds: which keeps more after tax?
At today's rates, 3-month T-bill keeps more after tax in all 9 tax scenarios below, by about $1,355 to $1,634 a year on $500,000.
After-tax yield by tax situation
Yield you keep after federal and state income tax, at today's rates. The last column is the yearly gap between the best and second-best on $500,000. The 3.8% net investment income tax is left out; it lowers every taxable option by the same share.
| Federal bracket, state tax | 3-month T-bill | Treasury fund | Prime fund | Yearly gap |
|---|---|---|---|---|
| 24%, no state tax | 3.21% | 2.88% | 2.82% | $1,634 |
| 24%, 5% state | 3.21% | 2.88% | 2.63% | $1,634 |
| 24%, 9.3% state | 3.21% | 2.88% | 2.47% | $1,634 |
| 32%, no state tax | 2.87% | 2.58% | 2.52% | $1,462 |
| 32%, 5% state | 2.87% | 2.58% | 2.34% | $1,462 |
| 32%, 9.3% state | 2.87% | 2.58% | 2.18% | $1,462 |
| 37%, no state tax | 2.66% | 2.39% | 2.34% | $1,355 |
| 37%, 5% state | 2.66% | 2.39% | 2.15% | $1,355 |
| 37%, 9.3% state | 2.66% | 2.39% | 1.99% | $1,355 |
What's different
| 3-month T-bill | Treasury fund | Prime fund | |
|---|---|---|---|
| What it is | 3-month Treasury billBought at auction or in your brokerage, held to maturity | Treasury-only money fundFSIXX, Fidelity Treasury Only Portfolio, on Merrill | Prime money fundSWVXX, Schwab Prime Advantage Money Fund |
| Rate today | 4.22%Par yield, held to maturityVerified October 23, 2026 | 3.79%7-day yieldVerified October 20, 2026 | 3.71%7-day yieldVerified October 21, 2026 |
| Getting your money | Matures in 3 months; can be sold any day at market price | Next business day | Next business day |
| Protection | Backed by the U.S. government | Money market fund, not FDIC-insured | Money market fund, not FDIC-insured |
| State income tax | Exempt | Exempt | Fully taxable |
T-bills lock today's rate until they mature and their interest is exempt from state income tax. Treasury-only money funds pass that exemption through and let you sell any business day. Prime funds usually yield a little more but their income is fully state-taxable, which matters more the higher your state rate.
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