Money market funds and Treasury bills are both used to park cash for short periods, and many money market funds hold T-bills. They still work differently. This page walks through the differences in structure, coverage, liquidity, taxes and how yields are quoted.
What each one is
A Treasury bill is a direct obligation of the U.S. government with a term of one year or less. You pay less than face value at auction or on the secondary market and receive face value at maturity. A money market fund is a mutual fund that holds short-term debt such as T-bills, repurchase agreements or commercial paper and pays out the income as dividends. Government money market funds hold mostly Treasury and agency securities and repos backed by them.
Coverage and structure
- Neither is FDIC insured. A money market fund is not the same as a bank money market deposit account, which is a bank deposit covered by the FDIC. National averages for deposit accounts are on our money market rates page.
- SIPC protects brokerage customers if the brokerage itself fails. It does not protect against changes in market value.
- Most retail and government money market funds aim to keep a stable share price, but that is a target, not a promise.
Liquidity
Fund shares can usually be redeemed on any business day. A T-bill pays face value only at maturity; before then you can exit through a brokerage on the secondary market at the current bid. Bills held at TreasuryDirect cannot be exited there and must first be transferred to a brokerage.
Taxes
T-bill interest is federally taxable and exempt from state and local income tax. Money market fund dividends are generally taxed as ordinary income. Some states exempt the share of a fund's dividends that comes from U.S. government obligations, and the rules and thresholds vary by state. The fund's year-end tax information shows that share. Compare after-tax with the after-tax comparison.
How yields are quoted
Money market funds report a 7-day SEC yield, which is net of fund expenses and changes daily. T-bill auction results are reported as a discount rate and an investment rate (bond-equivalent yield). Use the T-bill calculator to turn a price into a yield, and see the latest official auction results on the auction board.
Research tools
To follow yields, funds and your own holdings in one place, Stock Rover offers research and portfolio tools.
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Frequently asked questions
Is a money market fund the same as a money market account?
No. A money market fund is an investment fund and is not FDIC insured. A money market deposit account is a bank deposit covered by FDIC insurance up to the limit.
Are money market fund dividends exempt from state tax?
Only in part, and only in some states. Some states exempt the portion that comes from U.S. government obligations. T-bill interest itself is exempt from state and local income tax.
Which is more liquid?
Fund shares can usually be redeemed any business day. A T-bill pays face value at maturity and otherwise trades at the market bid through a brokerage.
See how we source the data and the guides hub. Educational, not investment advice.