T-bills vs money market funds is a 57 basis point question this week. The 6-month Treasury bill yielded 4.10% on September 17, 2026; Schwab’s $249 billion Value Advantage fund paid 3.53%. Bills also escape state income tax, and prime funds do not. ICI reported on September 17 that money fund assets fell $51.97 billion to $7.92 trillion in the week the Fed hiked.
What happened to money market funds this week?
Money funds shrank. The Investment Company Institute’s release of September 17, 2026 shows total assets down $51.97 billion to $7.92 trillion for the week ended September 16 — the same day the Fed raised rates. Government funds took almost all of it.
The ICI breakdown: government funds fell $47.88 billion to $6.53 trillion, prime funds fell $5.17 billion to $1.24 trillion, and tax-exempt funds added $1.07 billion to reach $150.42 billion.
Read the investor split before you read a narrative into it. Institutional assets dropped $49.88 billion. Retail dropped $2.09 billion — about 4% of the total move.
That is corporate cash management around the mid-September tax date, not households abandoning the sweep. Anyone selling you this print as a retail exodus is selling you the wrong number.
The rate backdrop
The FOMC statement of September 16, 2026 says the Committee “decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent,” on a 12-0 vote. U.S. Bank’s market commentary calls it the first increase in more than three years.
The Fed’s H.15 release for September 17, 2026 puts the federal funds effective rate at 3.88%, the 2-year Treasury at 4.67% and the 10-year at 4.94%. Cash is repricing upward, and the repricing is not uniform across products. That is where the money is.
T-bills vs money market funds: which pays more right now?
T-bills, on every maturity. H.15 secondary market rates for September 17, 2026 run from 3.83% at 4 weeks to 4.18% at one year. The two largest money funds we checked pay 3.53% and 3.46%. Bills win by 30 to 72 basis points before tax.
| Vehicle | Yield (as of Sep 17, 2026) | Expense ratio | State income tax | Liquidity |
|---|---|---|---|---|
| 4-week T-bill | 3.83% | None | Exempt | Matures in 28 days |
| 3-month T-bill | 3.97% | None | Exempt | Matures in 13 weeks |
| 6-month T-bill | 4.10% | None | Exempt | Matures in 26 weeks |
| 1-year T-bill | 4.18% | None | Exempt | Matures in 52 weeks |
| SGOV (iShares 0-3 Month Treasury) | 3.65% 30-day SEC (Sep 16); 3.90% avg YTM | 0.09% | Largely exempt | Intraday |
| BIL (SPDR 1-3 Month T-Bill) | 3.59% 30-day SEC; 3.90% avg YTM | 0.1353% | Largely exempt | Intraday |
| SWVXX (Schwab Value Advantage, prime) | 3.53% 7-day | 0.34% | Taxable | Same-day |
| SNSXX (Schwab U.S. Treasury) | 3.46% 7-day | 0.34% | Largely exempt | Same-day |
| VUSXX (Vanguard Treasury) | 3.63% 7-day SEC at 6/30/2026 | 0.07% | Largely exempt | Same-day |
One caveat that cuts against the bills. A 30-day SEC yield and a 7-day yield are both backward-looking. SGOV’s 3.65% reading, dated September 16, describes a month that was mostly pre-hike.
Its average yield to maturity — 3.90% on September 17, per the iShares fund page — is the better forward read. Money fund 7-day yields will climb too as portfolios roll. Check this table again in 30 days; today’s snapshot flatters bills.
How much does the expense ratio cost on $10,000?
Between $0 and $34 a year, and the spread is the whole argument. A Treasury bill bought at auction through TreasuryDirect carries no expense ratio at all. A 0.34% money fund charges $34 on the same $10,000 to buy substantially the same paper.
- T-bill bought direct: $10,000 x 0.00% = $0
- VUSXX at 0.07%: $10,000 x 0.0007 = $7.00
- SGOV at 0.09%: $10,000 x 0.0009 = $9.00
- BIL at 0.1353%: $10,000 x 0.001353 = $13.53
- SWVXX or SNSXX at 0.34%: $10,000 x 0.0034 = $34.00
Scale it to $100,000 and the Schwab funds cost $340 a year against SGOV’s $90. Both portfolios hold short Treasury paper. The $250 difference buys you a same-day sweep and a stable $1.00 share price.
Schwab’s page notes SWVXX’s 7-day yield “reflects the effect of all applicable waivers.” Waivers can be withdrawn. An expense ratio you can only see net of a waiver is a weaker promise than a bill with no fee at all.
Does state tax change the answer?
It widens the gap, sometimes past 90 basis points. Interest on Treasury bills is exempt from state and local income tax. Income from a prime fund holding commercial paper and bank obligations generally is not. On a six-figure cash pile that is real money.
The worked example
Take $100,000 and an illustrative 9.3% state marginal rate.
In SWVXX at 3.53%: $3,530 of income. State tax at 9.3% is $328.29. Net income $3,201.71 — an after-state yield of 3.20%.
In a 6-month T-bill at 4.10%: $4,100 of income, no state tax. After-state yield stays 4.10%.
The gap is $898.29 a year, or roughly 90 basis points. Federal tax applies to both and does not change the ranking.
Two conditions attach. The exemption flows through a fund only on the portion of income from direct Treasury obligations, and California, New York and Connecticut require a fund to clear a 50% government-asset threshold at each quarter end before any of it passes through. Check your fund’s year-end tax letter, not its marketing page.
Are T-bill ETFs like SGOV and BIL a better middle ground?
For most brokerage cash, yes. SGOV holds $110.45 billion as of September 17, 2026 at a 0.09% expense ratio, with effective duration of 0.11 years. You get bill exposure, state tax treatment and intraday liquidity without managing a maturity ladder.
BIL is the older, pricier twin: $47.89 billion in assets and a 0.1353% gross expense ratio, per SSgA’s fund page. Both reported the same 3.90% average yield to maturity on September 17. Same portfolio economics, 4.5 basis points of extra cost.
On $100,000 that is $45 a year for nothing. On measurable attributes — fee, size, identical YTM — SGOV is the cheaper way to own the same thing.
The ETF wrapper has one cost bills do not: the bid-ask spread on entry and exit, and a share price that moves. A bill held to maturity pays par. An ETF you sell on a bad tick does not.
Is the 6-month bill worth locking in?
It pays you 27 basis points over the 4-week bill to give up five months of flexibility. H.15 for September 17, 2026 shows 3.83% at 4 weeks against 4.10% at 6 months and 4.18% at 12 months. The curve is upward sloping across the bill sector.
That shape says the market expects more tightening, not less. A 2-year at 4.67% against a 3.88% effective funds rate, per the same release, points the same direction.
The trade-off is mechanical. Roll 4-week bills and you capture each hike within a month. Buy the 6-month and you bank 4.10% now but sit out the next two meetings.
Money funds sit in between by construction: SWVXX carries a 34.83-day weighted average maturity and SNSXX 47.45 days, per Schwab. They reprice in weeks, not overnight. We covered how that same duration math plays out further along the curve in our look at TIPS versus nominal Treasuries and in the breakdown of what 25 basis points costs bond ETF holders.
Which cash vehicle fits which investor?
It depends on three things and only three: whether you need the money inside 30 days, whether you live in a high-tax state, and whether your broker’s sweep is a fund or a bank account. Everything else is noise.
| Situation | Cheapest fit on measurable terms | Why |
|---|---|---|
| Emergency fund, may need it any day | Treasury money fund (VUSXX at 0.07%) | Same-day access, stable NAV, lowest fee in the group |
| Brokerage cash, no fixed date | SGOV at 0.09% | 3.90% avg YTM, intraday trading, 0.11-year duration |
| Known expense in 6 months | 6-month T-bill at 4.10% | Highest locked rate, no fee, matures on schedule |
| High state income tax | Direct bills or a Treasury-only fund | State exemption worth ~90bp at a 9.3% rate |
| Already parked in a 0.34% prime fund | Compare against the bill curve | Paying $340 per $100k and giving up the state exemption |
Frequently asked questions
Are T-bills safer than money market funds?
A bill is a direct obligation of the Treasury. A money fund is a portfolio with an expense ratio, a manager and, in prime funds, corporate credit. Government and Treasury funds narrow that gap but do not close it.
Why is SGOV’s quoted yield below the 3-month bill rate?
Because the 30-day SEC yield of 3.65%, dated September 16, 2026, looks backward over a mostly pre-hike month. Its average yield to maturity of 3.90% on September 17 is the forward-looking figure.
Do I pay federal tax on T-bill interest?
Yes. Bills are exempt from state and local income tax only. Federal tax applies to bill interest and to money fund dividends alike.
What happens if I sell a T-bill before maturity?
You take the market price, which moves with rates. The H.15 secondary market rates quoted here are exactly those prices. Held to maturity, a bill pays par regardless.
Did the September 17 ICI outflow mean investors are leaving cash?
No. Of the $51.97 billion decline, $49.88 billion was institutional. Retail funds fell $2.09 billion, leaving $3.11 trillion still parked.
Is a prime fund’s extra yield worth the extra risk?
On September 17, 2026 the prime fund SWVXX paid 3.53% against 3.46% for the Treasury-only SNSXX — seven basis points for corporate credit exposure and the loss of the state exemption. The arithmetic does not favor it in a high-tax state.
How does cash compare with dividend or bank equity exposure now?
Different risk entirely — cash has no drawdown. For how the same hike reshaped bank equity, see our comparison of XLF against KRE.
The bottom line
On September 17, 2026, direct T-bills beat every money fund we priced, on yield and on fee. The 6-month bill’s 4.10% tops SWVXX’s 3.53% by 57 basis points before tax and by roughly 90 after a 9.3% state rate.
The honest exception is liquidity. If the cash might move next week, a 0.07% Treasury money fund costs $7 per $10,000 and settles same day — a rational price for optionality.
What is not rational is 0.34% for short Treasury paper an ETF holds for 0.09%. That is the one line in the table worth acting on, and it has nothing to do with forecasting rates.
This article is journalism, not investment advice. Do your own research before investing.
Sources
- ICI — Money Market Fund Assets, release of September 17, 2026
- Federal Reserve H.15 — Selected Interest Rates, September 17, 2026
- FOMC statement, September 16, 2026
- iShares 0-3 Month Treasury Bond ETF (SGOV) fund page
- SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) fund page
- Schwab Value Advantage Money Fund (SWVXX)
- Schwab U.S. Treasury Money Fund (SNSXX)
- Vanguard Treasury Money Market Fund (VUSXX)