COMPARISON · MONEY · CASH YIELDS
The 52-week T-bill pays 4.616% and the money market fund pays 3.84% — so the bill looks like the winner. On $10,000 in the 22% federal bracket in a 5% state, the T-bill earns $461.60, pays federal tax only, and keeps $360.05. The fund earns $384.00, pays tax twice, and keeps $280.32. T-bills win by $79.73. But tick the Treasury-only-fund box and the gap narrows — type your own rates below.
Enter the T-bill rate, the fund’s 7-day SEC yield, your amount, and your tax brackets. The calculator taxes T-bill interest at your federal rate only (exempt from state and local tax under 31 U.S.C. §3124), taxes the fund’s income at federal plus state, and names the winner with the exact dollar and percentage-point gap. Tick the Treasury-only box to model a VUSXX-style fund instead of a VMFXX-style one.
Rate, then tax treatment, then the fund’s fine print. The headline rate is not what you keep: T-bill interest is taxed at federal only — the state-tax exemption (31 U.S.C. §3124) covers every dollar. A money market fund’s income is a mix: the default sweep fund VMFXX held roughly three-fifths of its portfolio in repurchase agreements in 2024–25, and only 66.61% of its 2025 income came from U.S. government obligations — so about a third of what it pays you is state-taxable. The Treasury-only VUSXX was 100% state-exempt in 2025. At the defaults on $10,000 in the 22% bracket with 5% state tax: T-bill keeps $360.05 (3.600%), the VMFXX-style fund keeps $280.32 (2.803%) — T-bills win by $79.73 (0.797 pp). Tick the Treasury-only box and the fund keeps $305.76 — the gap narrows to $54.29 but the T-bill still wins at these rates.
Setup: $10,000, a 4.616% T-bill (52-week bill, Sep 29, 2026 auction investment rate), a 3.84% money market fund (VMFXX 7-day SEC yield, Oct 23, 2026), a 22% federal bracket, and a 5% state bracket.
Line 1 — the gross. T-bill: $10,000 × 4.616% = $461.60. Fund: $10,000 × 3.84% = $384.00 (the 7-day SEC yield is already net of the fund’s expenses). The T-bill earns $77.60 more before tax — the rate race is not close this week.
Line 2 — the tax. T-bill interest skips state tax: $461.60 × (1 − 0.22) = $360.05 kept (a 3.600% effective yield). The fund pays both: $384 × (1 − 0.22 − 0.05) = $384 × 0.73 = $280.32 kept (a 2.803% effective yield). The state tax on the fund’s income is $19.20; the T-bill’s full exemption is worth more than the fund’s partial one — by design.
Line 3 — the verdict. $360.05 − $280.32 = $79.73 a year on $10,000; 3.600% − 2.803% = 0.797 percentage points — T-bills win. Unlike the CD duel, the winner here does not depend on your state: the T-bill’s rate lead is bigger than any state tax could erase.
Branch — no-tax state (state 0%, everything else at default): the fund pays federal only: $384 × 0.78 = $299.52, against the same $360.05 T-bill: T-bills win by $60.53 (0.605 pp). Removing the state tax narrows the gap but cannot close it — the T-bill’s rate lead (0.776 points pre-tax) survives on its own.
Branch — California (32% federal is wrong here; use 22% federal + 9.3% state): the T-bill still keeps $360.05 — California cannot touch it. The fund keeps $384 × (1 − 0.22 − 0.093) = $384 × 0.687 = $263.81: T-bills win by $96.24 (0.962 pp). California is also one of the states with a 50% rule: a fund must hold 50%+ in U.S. government obligations at each quarter-end before any of its income escapes state tax — VMFXX cleared it in 2025, but a more repo-heavy fund might not.
Branch — shorter paper (26-week bill 4.372% vs 3.84% fund): T-bill: $10,000 × 4.372% = $437.20 × 0.78 = $341.02 after tax. Fund: same $280.32. T-bills win by $60.70 (0.607 pp) — the mechanism is identical at every term.
Branch — Treasury-only fund toggle (VUSXX 3.92%, state-exempt): the fund keeps $392 × 0.78 = $305.76 — a $25.44 improvement over the VMFXX-style result, purely from the state exemption. The T-bill’s $360.05 still wins by $54.29 (0.543 pp). The toggle’s lesson is about which fund, not bill vs fund: a Treasury-only fund beats a federal fund for anyone in a tax state.
Branch — the error case: set federal + state to 100% or more and the calculator refuses — combined marginal rates under 100% only, please. Real top combined rates land near 50%.
| Output | Formula | What it means |
|---|---|---|
| T-bill interest | A × rate | $461.60 at the defaults — the raw coupon on your cash before the IRS takes its cut. |
| T-bills after tax | interest × (1 − federal) | $360.05 at the defaults — federal tax only; state tax is zero by law. |
| Fund interest | A × 7-day SEC yield | $384.00 at the defaults — the yield is already net of the fund’s expenses. |
| Fund after tax | interest × (1 − federal − state) | $280.32 at the defaults — the state bite lands on the fund’s non-Treasury income; tick the Treasury-only box and it becomes interest × (1 − federal) = $305.76. |
| T-bill effective rate | T-bills after tax ÷ A | 3.600% at the defaults — the one number that compares directly with the fund’s 2.803%. |
| Winner’s edge | T-bill after-tax − fund after-tax, in pp and dollars | 0.797 pp / $79.73 for T-bills at the defaults — the number to decide on. |
The math treats both as simple interest over one year. The 7-day SEC yield is a snapshot — it moves daily with short-term rates, so the fund’s edge (or deficit) drifts between auctions; the calculator compares today’s yields, not a locked year. The toggle’s “Treasury-only” mode assumes 100% of the fund’s income is state-exempt: VUSXX was 100% in 2025, but it was 80.06% in 2023 — check your fund’s annual tax supplement for the real percentage, and note that California, Connecticut, and New York require 50%+ in government obligations at each quarter-end before any exemption applies. Fund income is reported on Form 1099-DIV, not 1099-INT — the exempt share is your job to claim. Minimums differ: T-bills start at $100 at TreasuryDirect or any broker; fund minimums are typically $0–$3,000 depending on the fund. Money market funds are not FDIC-insured — they carry SIPC coverage at brokerages (which protects against broker failure, not investment loss) and target a stable $1 NAV that can, rarely, break. It models marginal tax rates only, not deductions or phaseouts, and it does not model inflation. This is educational math, not tax or investment advice.
Bright Side Kit. "T-Bills vs Money Market Funds: 2026 After-Tax Verdict | Bright Side Kit." https://brightoolbox.com/t-bills-vs-money-market-funds/ Accessed October 23, 2026.Data sourcesFederal law — 31 U.S.C. §3124 — exempts interest on direct U.S. obligations from state and local tax. A T-bill is a direct obligation; a money market fund is not. The fund’s income is only state-exempt to the extent it came from U.S. government obligations: VMFXX’s 2025 income was 66.61% exempt because the rest came from repurchase agreements and agency paper. The toggle models the Treasury-only case (VUSXX: 100% exempt in 2025).
VMFXX (Vanguard Federal Money Market) is the default cash sweep in Vanguard brokerage accounts — it holds Treasuries plus agency debt and repos, so only part of its income escapes state tax. VUSXX (Vanguard Treasury Money Market) holds essentially all Treasuries, so ~100% of its income is state-exempt. At the October 2026 defaults the Treasury-only fund keeps $25.44 more on $10,000 in a 5% state.
Vanguard keeps the federal fund as the sweep because a cash sweep sees constant inflows and outflows — repos and agency paper are more liquid for that churn than pure Treasuries. You can still buy VUSXX manually and hold cash there; it just won’t be the automatic destination of deposits.
Vanguard reports it on Form 1099-DIV, not 1099-INT — and the 1099 does not break out the state-exempt share. You (or your preparer) must look up the fund’s tax-center / year-end tax supplement percentage and claim the exemption on your state return. Miss it and you overpay state tax on income the law exempts.
No. Money market funds are not FDIC-insured. At a brokerage they carry SIPC coverage, which protects you if the broker fails — not against investment losses. Funds target a stable $1.00 NAV and almost always hold it, but a fund can “break the buck.” T-bills are direct U.S. Treasury obligations — the benchmark everything else is measured against.
When its after-tax yield beats the T-bill’s — which needs the fund’s yield to exceed the T-bill rate divided by (1 − your state rate), roughly. At the October 2026 defaults the fund loses in every state, including no-tax states ($60.53 behind at 0% state). If fund yields ever rise above T-bill rates, rerun the numbers — the calculator will say so.
T-bills start at $100 in $100 increments at TreasuryDirect or any broker. A money market fund redeems T+1 — cash the next business day, no maturity decision. A T-bill must be held to maturity or sold on the secondary market through your broker (no penalty, but the sale price moves with rates). The $79.73 edge at the defaults is partly the price of that convenience.