Savings Accounts and Cash-Equivalent Alternatives
A savings account is an interest-bearing deposit account providing high capital preservation and liquidity. Historically these were subject to the Federal Reserve’s Regulation D ( 12 CFR Part 204), which capped convenient transfers at six per statement cycle — not to protect you but because the cap defined a “savings deposit” for bank reserve requirements. The Fed removed the limit in April 2020 when it set reserve requirements to zero, though many banks still enforce it internally and charge excess-withdrawal fees, so check your own agreement.
(Do not confuse this with the SEC’s Regulation D governing private placements, which appears throughout chapter “Alternative Investments” and section “Real Estate Investing”. Two different agencies, two unrelated rules, the same name.)
Traditional savings accounts are structurally inefficient: the yields frequently fail to clear the rate of inflation, resulting in a real, post-tax capital drag. Instead of storing cash reserves in standard savings accounts, use these cash-equivalent alternatives:
- Money Market Funds (MMFs)
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Money Market Funds are specialized open-end mutual funds investing solely in high-quality, short-term debt instruments (such as U.S. Treasury bills, federal agency debt, and high-grade commercial paper). MMFs aim to maintain a Net Asset Value (NAV ) of $1.00 per share, offering daily liquidity and yields that closely track the effective Federal Funds Rate.
- U.S. Treasury Bills (T-Bills)
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Treasury Bills are short-term sovereign debt obligations backed by the full faith and credit of the U.S. Government, issued with maturities from 4 to 52 weeks, sold at a discount and maturing at par. Interest on federal obligations is exempt from state and local income tax under 31 U.S.C. §3124(a) — a statutory exemption no bank product can replicate.
That exemption is worth an explicit number, because the headline yields mislead. To compare a Treasury against a fully taxable bank deposit, gross the Treasury up to its tax-equivalent yield:
where is your state marginal rate (use the after-federal-benefit rate if you still itemize state taxes under the SALT cap; at high incomes assume you do not). For a California resident at the 13.3% top bracket holding a 4.20% T-bill:
So a high-yield savings account must pay above 4.84% to beat that T-bill — and it almost never does, because the bank is funding its own margin out of the same rate environment. Equivalently, compare after-tax yields directly: the 4.20% T-bill nets 4.20% of state tax, while a 4.50% savings account nets . The Treasury wins by 30 basis points despite a lower headline. In a no-income-tax state (Texas, Florida, Nevada, Washington, Tennessee) the adjustment vanishes and you compare the raw numbers.
Treasury money market funds inherit the same treatment on the portion of income derived from direct federal obligations — the fund reports the percentage annually, and some states impose a minimum-holding threshold before allowing the exclusion.
- Cash Management Accounts (CMAs)
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A cash management account is a brokerage-side checking substitute — Fidelity’s CMA, Schwab’s, the Vanguard Cash Plus Account — that sweeps your idle balance into a network of partner banks, layering FDIC coverage across several institutions (frequently $1–5 million of aggregate insurance, well past the $250,000 single-bank ceiling) while handing you a debit card, bill pay, ATM-fee rebates, and direct deposit. You get the plumbing of a checking account with the yield of a sweep and multi-bank insurance the single branch down the street cannot match. Two catches: the yield is whatever the sweep partner deigns to pay, which structurally lags a Treasury MMF, and in a genuine bank-run week the partner-bank layer is exactly where you least want your operating cash. Treat a CMA as the transactional hub, not the core reserve — keep the reserve in Treasuries per section “Consider Taxation”.