It was not too long ago that low-risk investments like Treasury bills were the underdogs of the financial world. While T-bills provide a safe place to store your savings while earning a fixed interest rate, they were simply not worth the low returns they offered — especially when compared to the flexibility of savings accounts.

Then, in 2022, something unusual happened: Interest rates started increasing, and they just kept on shooting upward, until the rates on some T-bills, and even savings accounts, passed 5%.

In 2024, anyone who wants to earn a competitive rate on their short-to-mid-term savings would be wise to consider both as options. Which one is best for you: A high-yield savings account or Treasury bill? The answer mainly depends on when you need your money back.

What is a high-yield savings account?

A savings account is a bank account designed to help you save money. These accounts typically earn more interest than checking accounts do, and they're very low risk since most banks insure your deposits up to $250,000.

The downside? Most savings accounts don’t pay much; the national average savings account rate is just 0.46% today. You might earn more interest by leaving your money in a time-bound account like a T-bill or CD, or by investing in the market. Inflation is also likely to outpace your earnings on a savings account.

One way to maximize what you earn on your savings is to use a high-yield savings account (HYSA). These accounts work just like traditional savings account, except they can offer rates as high as 5% APY or more.

See our picks for the 10 best high-yield savings accounts available today>>

What is a Treasury bill?

Buying a Treasury bill is sort of like making a loan to the U.S. government. T-bills pay you guaranteed interest based on the length of time you invest your money. Rates currently range from 4.23% to 5.27% with terms of four to 52 weeks. You can sell a T-bill before the maturity date, but you'll lose some of the interest you would have earned otherwise.

Additionally, unlike savings accounts, you only pay federal taxes (no state taxes) on the interest you earn on T-bills.

Read more: Do I have to pay taxes on my savings account?

Choosing between a T-bill vs. HYSA

If you have cash you don't plan to use for a couple of months or even for several years, either of these options can be a good place to keep it. But they each serve different purposes.

An HYSA is the best choice for your emergency savings or cash you need for an upcoming expense. Unlike T-bills, you can deposit and withdraw funds to and from a savings account at any time (though withdrawal limits may apply).

When it comes to money you can part with for a few months or more, a Treasury bill can be a good choice.

Here are the features you should compare before choosing a HYSA versus a Treasury bill:

• Account fees

• Interest rates

• Fixed vs. variable rates

• Time to maturity

• Taxes on interest

• Limits on deposits and withdrawals

Read more: CDs vs. Treasury bills: Maximizing your savings