If you’re sitting on a large cash balance waiting for something specific, a home purchase, a practice buy-in, a syndication that hasn’t called capital yet, you have a decision to make that most people never actually make. They just leave it wherever it landed.
The cost of that is real but modest. Two hundred thousand dollars in a checking account earning close to nothing, versus roughly 4 percent, is about $8,000 a year.
The cost of the opposite mistake is much larger, and it’s the one worth more attention.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial, legal, or investment advice. Any investment involves risk, and you should consult your financial advisor, attorney, or CPA before making any investment decisions. Past performance is not indicative of future results. The author and associated entities disclaim any liability for loss incurred as a result of the use of this material or its content.
Start with the date, not the yield
Every dollar you’re holding either has a date attached to it or it doesn’t.
If it has a date, your job is making sure it’s there on that date. If it doesn’t, it isn’t really cash, it’s investment capital, and a savings account is the wrong place for it.
The second question matters almost as much: how firm is that date? Closings slip. Capital calls arrive early. Build around the date you might actually need the money, not the one on the calendar.
The four main options
| Access speed | Insured | State tax | Rate behavior | |
|---|---|---|---|---|
| High-yield savings | 1 to 3 days (ACH) | FDIC to $250K | Taxable | Bank-set, promotional |
| Money market fund | Same or next day | No (SEC-regulated) | Partly exempt | Tracks Fed quickly |
| T-bills | At maturity, or sell | Treasury-backed | Exempt | Locked at purchase |
| Treasury ETF | T+1 | Treasury-backed | Exempt | Floats with market |
High-yield savings accounts are the simplest option and currently pay in the range of 4.1 to 4.2 percent at the top of the market, against a national average savings rate of 0.38 percent. The rate is variable and promotional, so banks cut quietly. The account that was competitive two years ago may not be today.
Money market funds live inside your brokerage, which matters when you need to wire quickly. Yields are comparable to top savings accounts right now, but they track Fed moves almost immediately in both directions, while bank rates lag on the way up and fall fast on the way down. Compare funds using the 7-day SEC yield.
T-bills run from 4 weeks to 52 weeks, with the 3-month currently yielding around 4.03 percent. Held to maturity, there’s no price risk.
One practical trap: if you buy through TreasuryDirect, you cannot sell before maturity on that platform. You’d have to transfer the security to a brokerage first. If your date is uncertain, buy bills through your brokerage instead.
Treasury ETFs are the convenience version. They trade like a stock, settle the next business day, and require no laddering. You give up a few basis points to the fund and accept minor share price movement.
Two options most people skip
No-penalty CDs. Standard CDs are wrong for an uncertain timeline, since the early withdrawal penalty is exactly the feature you don’t want. The no-penalty version removes it: you lock a rate for 11 or 13 months and can withdraw the full balance any time after the first week. The tradeoffs are a slightly lower rate, and most don’t permit partial withdrawals.
Brokerage cash sweep programs. If your balance exceeds $250,000, multi-bank sweep programs spread deposits across a network of partner banks, pushing effective FDIC coverage well past the single-bank limit.
Worth checking regardless of balance: what your brokerage cash is actually sitting in. At some firms the default sweep is a money market fund earning market rate. At others it’s a bank deposit sweep earning a fraction of a percent, while a money market fund paying four times that sits one click away in the same account.
The state tax advantage
Treasury interest is exempt from state and local income tax. Bank interest is not.
For a California physician in the 9.3 percent marginal state bracket, a Treasury yielding 4.00 percent is equivalent to roughly 4.41 percent from a bank. The bank has to beat the Treasury by more than 40 basis points just to tie. In New York City, stacking state and city tax widens the gap further.
Two details that matter:
Money market funds only pass through the exemption partially. It applies to the portion of the fund holding direct government obligations, and California, New York, and Connecticut require the fund to clear a threshold of government holdings before any of it passes through. Funds publish that percentage annually, which means two funds with identical yields can produce different after-tax results.
None of this applies in Texas, Florida, Tennessee, Nevada, and other no-income-tax states. There’s nothing to be exempt from.
For those in the top federal bracket in a high-tax state, a state-specific municipal money market fund can sometimes win on an after-tax basis despite a lower headline yield. That’s a narrow case requiring actual calculation.
Where this money should not go
Two categories, with different failure modes.
Illiquid by design. Syndications are 3 to 7 year holds with no redemption right and no meaningful secondary market. The operator decides when you get your money back. Distributions can be paused, and capital calls can request more rather than return any. The same applies to private notes, hard money lending, and money lent to family or a friend’s business.
None of that is a flaw in the asset. It’s simply incompatible with money that has a fixed date attached.
Liquid but still wrong.
- Equities. You can sell any day. You may hate the price on the day you have to. Down 18 percent in month 12 of a 14-month timeline leaves you closing late or locking in the loss.
- Long-duration bond funds. In 2022, the most widely held long-term Treasury fund lost more than 30 percent. Those were Treasuries. Safe from default is not the same as safe from loss.
- Standard CDs with a real early withdrawal penalty.
- I Bonds. Locked for a full 12 months with no exceptions, plus a three-month interest penalty before year five. Annual purchase limits make them irrelevant at this scale anyway.
- Annuities and cash value life insurance. Surrender charges can run 5 to 10 years. Getting your money out early means paying a fee to access it. This is worth naming specifically, because it’s the product most likely to be pitched to a parent or retiree holding exactly this kind of cash, and it will be described as safe.
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The question nobody asks
Everything above optimizes for yield, tax treatment, and access. There’s a fourth variable that determines whether any of it works: who is going to operate this?
A rolling T-bill ladder through a brokerage is often the technically optimal answer. Better yield, no state tax, complete control. It also requires someone to roll it every 90 days.
If that person doesn’t exist, the optimal plan isn’t the realistic alternative. The realistic alternative is frustration, abandonment, and the money sitting in checking for two years earning nothing.
A single high-yield savings account with a multi-bank sweep gives up the state tax exemption and rate certainty, costing perhaps a few thousand dollars a year on a large balance. It also runs itself.
Sometimes that’s the correct trade, and not because it’s simpler. Because it’s the one that actually gets used.
What to do this week
List every idle balance across your accounts.
- Write a date next to each one. No date means it isn’t cash.
- For dated money, let the date select the instrument, not the yield.
- If the date is genuinely unknown, pay for liquidity deliberately. Take the slightly lower number in exchange for flexibility.
- Be honest about whether you’ll maintain the structure, or whether it needs to run without you.
Rates cited as of September 2026 and will change. The framework won’t.
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Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
Disclaimer: I am not a CPA, attorney, or financial advisor. The information in this post is for educational purposes only and should not be construed as tax, legal, or financial advice. Please consult a qualified professional about your specific situation before making any decisions.
Further Reading
