Money Market and T-Bill ETFs: Where Cash Earns a Yield

Idle cash is an expensive decision

Cash sitting in most brokerage accounts earns close to nothing. The default sweep on many platforms pays under 0.5%, while a T-bill or money market ETF tracking the same short-dated government paper has yielded 3% to 5% for most of the past three years. On $50,000 held as dry powder for a year, that gap is roughly $1,500 to $2,000 in yield left on the table.

Short-term Treasury and money market ETFs close the gap. They hold the same instruments that money market mutual funds hold: short-dated government paper, floating-rate Treasuries, and high-grade commercial paper. The difference is the wrapper. An ETF trades on exchange with intraday liquidity, the yield passes through as dividends, and the expense ratio is usually under 0.20%.

This is the second tool in the capital preservation toolkit. Low-volatility equity dampens stock market swings while staying invested; cash ETFs step out of equity risk entirely. Both have a role, for different questions.

What these ETFs actually hold

Three flavors cover most of the category.

Direct T-bill funds like SGOV and BIL own US government paper maturing in the next 0 to 3 months. The portfolio rolls constantly as bills mature. Credit risk is as close to zero as anything in global markets, and duration is measured in weeks, so the NAV barely moves when rates change.

Short-duration and floating-rate Treasury funds like SHV and USFR extend slightly or float the coupon. SHV holds Treasuries up to 12 months (fractionally higher yield, slightly more NAV wobble). USFR holds Treasury floating-rate notes that reset weekly against the 13-week T-bill auction, giving the most stable NAV in fast rate moves.

Ultra-short income funds like JPST stretch into high-grade corporate debt, commercial paper, and certificates of deposit alongside Treasuries. The yield picks up 20 to 50 basis points, but you're taking some credit risk. Small, but not zero. In March 2020, some ultra-short funds briefly broke from their usual price stability when commercial paper markets seized up. Pure Treasury funds and ultra-short income funds look similar on the headline yield. The risk profile underneath is different.

Why the yield resets fast

Unlike a bond fund that locks in yields for years, these funds reprice with central bank policy. When the Federal Reserve raises rates, Treasury bills auctioned the next week pay more, the ETF holds that new paper within days, and the distribution yield follows with a lag of roughly a month.

This cuts both ways. SGOV's yield climbed from under 0.5% in early 2022 to above 5% by mid-2023 as the Fed hiked. It fell back through 2025 as the Fed cut. A five-year CD locked at 4.5% in 2023 kept paying 4.5%; SGOV did not. This is reinvestment risk, and it's the real tradeoff of holding ultra-short paper. For cash you'll deploy in six months, it doesn't matter. For a ten-year income stream, these funds are the wrong tool.

SGOV vs BIL: the 4.5-basis-point question

The two largest 0-3 month T-bill ETFs are close to interchangeable in what they hold. Both own essentially the same slice of the US Treasury curve. The meaningful difference is cost.

On $10,000 held for a year, SGOV costs $9 in fees, BIL $13.56. Over a decade on $100,000 held continuously, SGOV leaves you with roughly $400 more at similar gross yields. BIL has a longer track record and a deeper options market; SGOV has more assets under management and typically tighter bid-ask spreads. For a buy-and-hold cash position, SGOV is the cheaper default. Neither outperforms the other on the underlying bonds, because the underlying bonds are the same.

Five short-duration cash ETFs worth knowing

For most buy-and-hold investors, SGOV is the best money market ETF by default: cheapest fees, deepest liquidity, pure Treasury exposure. The four alternatives below exist for specific needs (options hedging, corporate yield pickup, maximum NAV stability), not as generic upgrades.

SGOV (iShares 0-3 Month Treasury Bond ETF, 0.09%). The cheapest major T-bill ETF. Distribution yield tracks the 1-month T-bill yield almost perfectly. Default choice for parking cash in an ETF wrapper.

BIL (SPDR Bloomberg 1-3 Month T-Bill ETF, 0.1356%). Original short-duration T-bill ETF, slightly older slice of the curve. Fractionally higher yield on average, more established options market.

USFR (WisdomTree Floating Rate Treasury Fund, 0.15%). Treasury floating-rate notes resetting weekly. Maximum NAV stability in fast rate shifts. Useful when near-term rate volatility is the specific concern.

SHV (iShares Short Treasury Bond ETF, 0.15%). Treasuries up to 12 months. Typically 10 to 25 basis points higher yield than SGOV, with slightly more price movement. A half-step between T-bill and short-duration bond funds.

JPST (JPMorgan Ultra-Short Income ETF, 0.18%). Not a Treasury fund. Blends high-grade corporate debt, commercial paper, and floating-rate notes with Treasuries. Yields 30 to 60 basis points above SGOV in normal markets, with credit spread risk attached. Actively managed.

All five are US-listed and US-dollar denominated. Non-USD investors should read the sections below before buying.

ETFs vs high-yield savings accounts

For cash you genuinely need, a high-yield savings account and a T-bill ETF do similar jobs with different structures. A US savings account is FDIC-insured up to $250,000 per depositor per bank and settles same-day via bank transfer. A T-bill ETF is not FDIC-insured but holds direct obligations of the US Treasury, settles T+1, and can only be sold during market hours. During most rate environments, T-bill ETFs pay more than mainstream HYSAs because they track the Treasury yield directly with minimal markup.

The right answer is often both. Keep genuine emergency cash in a HYSA for instant access. Park investment cash between allocations in an ETF for the yield pickup.

Tax treatment: the one place geography matters

In the United States, interest from US Treasury bonds is exempt from state and local income taxes (though still subject to federal). For an investor in California or New York, this exemption adds the equivalent of 50 to 100 basis points of after-tax yield compared to a corporate bond paying the same gross rate. SGOV, BIL, USFR, and SHV pass this through. JPST does not, because it holds more than Treasuries.

Outside the United States, US-listed ETFs distribute dividends subject to US withholding tax for non-resident aliens, typically 15% to 30% depending on treaty status, regardless of whether the underlying income is Treasury interest. Many non-US investors use Irish-domiciled UCITS equivalents (IB01 for 0-1 year US Treasury exposure) specifically to avoid this structure. Check how your broker classifies distributions before making this a large position.

Where these funds stop making sense

Long-term capital. If you don't need the money for five years, parking it in cash ETFs is a near-guaranteed way to underperform inflation plus opportunity cost. Over the past 30 years, a diversified equity index has delivered roughly 7% real. Short-term Treasuries have delivered roughly 1% real. That gap compounds into missed decades of growth.

Currency mismatch. Holding USD cash ETFs against non-USD liabilities adds FX risk on top of yield risk. A European investor earning 5% in SGOV while the dollar falls 8% against the euro has lost money measured in euros. For cash you'll spend in a non-USD currency, use a local-currency equivalent or accept the FX exposure explicitly.

Portfolio roles that aren't cash. These are cash substitutes, not bond allocations, not diversifiers, not equity alternatives. Holding SGOV as the "fixed income" sleeve of a 60/40 portfolio misses what fixed income is supposed to do, which is offer price appreciation when equities fall (a property short-duration Treasuries don't have). For that, browse longer-duration bond ETFs.

Part two of four

Low-volatility equity dampens stock market swings while staying invested. Cash ETFs step out of equity risk entirely for money you need within a few years. Buffered ETFs (August) use options structures to cap losses at a set percentage while sacrificing some upside. Tail risk hedges (October) buy explicit insurance against extreme moves at a persistent annual cost. A portfolio worried about near-term drawdown might use all four together; a portfolio with a 20-year horizon probably needs none.

Yield on idle cash is the cheapest money you'll ever earn

Most portfolio decisions involve a real tradeoff: more volatility for more expected return, more credit risk for more yield, less liquidity for fewer fees. Cash ETFs are different. They replace an inferior product (the brokerage sweep) with a superior one at almost no added risk, and the implementation takes about ten minutes.

These funds aren't exciting, and they don't solve for long-term growth. What they do is solve a narrow, boring problem meaningfully better than the alternative. For any investment account holding more than a small cash balance, that's worth doing.