If you've been parking cash in a high-yield savings account and feeling pretty good about it, you're not wrong to feel that way — those rates have been meaningfully better than what traditional banks offer. But there's another option that's been quietly attracting attention from more savvy cash holders: short-term Treasury ETFs. They're worth understanding, because they come with some real advantages — and a few important differences that you need to know going in.
What Are Short-Term Treasury ETFs?
A short-term Treasury ETF is a fund that holds U.S. government debt with very short maturities — typically ranging from one month to one or two years. Popular examples include:
- BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) — holds Treasury bills with maturities of one to three months
- SHV (iShares Short Treasury Bond ETF) — similar short-duration T-bill exposure
- SGOV (iShares 0-3 Month Treasury Bond ETF) — tracks even shorter-duration bills, often just weeks
- SHY (iShares 1-3 Year Treasury Bond ETF) — slightly longer duration, more yield, slightly more rate sensitivity
These funds pass the interest income from the underlying Treasury bills through to shareholders, typically as monthly distributions. Because T-bills closely track the federal funds rate, their yields move in near lockstep with the Fed's policy decisions.
The Case for Using Them as a Savings Alternative
At competitive rate environments, short-term Treasury ETFs have often matched or exceeded what most high-yield savings accounts offer — including some of the top online banks. The yield advantage can be modest or significant depending on where rates stand, but it's not the only reason to consider them.
Backed by the U.S. government. The underlying assets are direct obligations of the U.S. Treasury — about as credit-risk-free as it gets. You're not relying on a bank's balance sheet. Highly liquid. These ETFs trade on exchanges during market hours. You can buy or sell in seconds during a trading day, and the proceeds settle in your brokerage account quickly (typically T+1). That's comparable to the convenience of a savings account for most real-world situations. Transparent and simple. There are no rate teaser periods, no introductory APYs that quietly drop after a few months, no rate tiers based on your balance. The yield reflects what short-term Treasuries are actually paying. No state or local income tax on interest. Treasury interest is exempt from state and local taxes, which can give them an edge over savings accounts for people in higher state-tax environments. Federal tax still applies.The Critical Difference: SIPC, Not FDIC
This is the part that every potential investor needs to understand clearly.
Savings accounts at FDIC-insured banks are covered up to $250,000 per depositor per institution. If the bank fails, the FDIC steps in and you get your money. That protection is essentially ironclad. Short-term Treasury ETFs held at a brokerage are covered by SIPC — the Securities Investor Protection Corporation — not FDIC. SIPC covers up to $500,000 (including up to $250,000 in cash) per customer in the event that a brokerage firm fails and customer assets go missing.It's important to understand what SIPC does and doesn't do: SIPC protects against the failure of your brokerage firm and the potential loss of assets in that scenario. It does not protect against investment losses. If the value of your Treasury ETF drops, SIPC doesn't cover that. In practice, short-term T-bill funds have extremely low price volatility — but the protection mechanism is fundamentally different from FDIC.
For most people holding Treasury ETFs at a major, well-capitalized brokerage, the practical risk of brokerage failure is very low. But it's not zero, and it's different from a bank deposit guarantee. Know the difference before you move money.
Market Risk: Small but Real
Unlike a savings account where your balance only goes up (or stays flat), a Treasury ETF has a share price that can fluctuate. For funds holding very short-duration T-bills (like BIL or SGOV), that fluctuation is minimal — we're talking fractions of a cent in most cases. But if you need to sell on a specific day, you'll get the market price, not a guaranteed balance.
For longer-duration options like SHY (1-3 year Treasuries), there's more interest rate sensitivity. If rates rise, the fund's share price drops — temporarily — while the yield goes up. This is relevant if you might need to sell during a rate hike cycle.
The practical takeaway: for money you're confident you won't need for at least a few weeks, short-duration Treasury ETFs are about as stable as it gets in the ETF world. For money you might need overnight, a savings account with instant access is still simpler.
Who This Makes Most Sense For
Short-term Treasury ETFs aren't the right fit for everyone, but they're worth considering if:
- You already have a brokerage account and want to put idle cash to work within it
- You're in a higher state income tax bracket and can benefit from the state/local tax exemption on Treasury interest
- You want to keep your emergency fund or short-term savings earning competitive yield without chasing rate offers from online banks
- You understand and are comfortable with the SIPC vs. FDIC distinction
They're less ideal if you need an account you can link directly to bill payments, if you're uncomfortable with any mark-to-market fluctuation, or if the simplicity of a single savings account matters to you for budgeting purposes.
The Bottom Line
Short-term Treasury ETFs are a legitimate, well-established tool for putting cash to work — not a gimmick or a risky alternative. For the right investor, they offer competitive yields, government-backed underlying assets, and real liquidity. The tradeoff is that they're not FDIC insured, they require a brokerage account, and they carry a tiny amount of market risk that a savings account doesn't.
Neither option is universally better. But knowing that Treasury ETFs exist — and understanding exactly how they differ from a savings account — means you can make an informed choice about where your cash lives.
Disclosure: This article is for informational purposes only and is not financial advice. We are not licensed financial advisors. All investments involve risk. SIPC protection has limits and does not protect against investment losses. Always do your own research and consider consulting a licensed financial advisor before making investment decisions.