Silly Money • by Ankur Nagpal

Most people are leaving money on the table by not being smart about where they hold their uninvested cash.

This is especially true for people who pay a lot of taxes.

While you could earn 3%-4% on your cash by finding a bank that offers a high-yield savings account, there are significantly better alternatives out there.

By implementing the strategies I outline in this article, I can find a tax-equivalent yield on my cash of more than 6% as of today.

This is almost double what I’d earn in a high-yield savings account!

This article will break down how you can follow the exact same process:

• Introduction to Money Market Mutual Funds

• Tax-Equivalent Yield

• A Step-by-Step Guide to Doing This Yourself

• Automated Products

• Conclusion

Introduction to Money Market Mutual Funds

A money market mutual fund is a type of mutual fund that is designed to be a safe, stable investment for money you may need in the short term.

As such, it’s a popular alternative to a high-yield savings account. These can be bought and traded at most brokerages like Fidelity, Schwab and Vanguard.

However, there are some significant benefits to using a money market fund, particularly for high earners:

Higher returns

Most money market funds pay a higher yield than high-yield savings accounts, often in the range of 0.5%-1% or more.

Money market fund yields also move faster than high-yield savings accounts — when rates go up, you see those reflected in money market funds faster than a bank updates the interest it pays you.

Tax benefits

There are many different types of money market funds — including special types of money market funds that are exempt from having to pay either federal taxes, state and local taxes, or both!

Here are two special types of money market funds you should know about:

• Treasury Money Market Funds: These funds invest exclusively in US treasuries and as such, you have to pay no state and local taxes on the interest you earn.

• Muni Money Market Funds: These funds invest in local municipal bonds and as such, you have to pay no federal taxes on the interest you earn. If the muni is from your home state, you could also end up paying no state taxes!

Typically, these tax-advantaged money market funds have slightly lower pre-tax yields, but higher yields when you factor in the taxes you would have to otherwise pay.

Are there any downsides to using a money-market fund over a high-yield savings account (HYSA)?

The one additional benefit conferred by a HYSA is your dollars are protected by FDIC insurance in case the bank fails of up to $250,000.

While money market funds are designed to be ultra-safe investments, it is theoretically possible that you could lose some of your principal if the fund “breaks the buck”.

This has only ever happened twice in history and has never ever happened with a money market fund backed by government securities.

Some money market funds could take 24-48 hours for liquidity, while bank accounts may be able to give you instant liquidity.

Tax-Equivalent Yield

How do you choose between all the different money market funds and decide where to invest your money?

You do this by calculating the tax-equivalent yield for each of these funds.

The tax-equivalent yield is the yield a taxable investment like a high-yield savings account would need to offer to match the after-tax return of a tax-advantaged money market fund.

It helps you compare the true value of these tax-advantaged investments relative to things that don’t help with taxes.

You don’t need to worry about the actual calculation, you can just plug in your estimated income, state of residence and tax-exempt status into my Tax-Equivalent Yield Calculator and pull the numbers for any fund.

In the example above, a specific muni money market fund (VYFXX for those curious) is paying a 7-day yield of 3.64% while being exempt from federal and state taxes in New York.

Entering in my income and location of residence, the calculator computed that the tax-equivalent yield on this fund is the equivalent of a high-yield savings account paying 6.35%!

In the background, the calculator pulls your federal and state tax bracket, uses the input you provide on whether the fund is taxable on the federal and state level and calculates the pre-tax equivalent of that yield.

Put another way — in the example above, if you apply your marginal federal and state tax rate to 6.35%, you’d end up with 3.64%.

A Step-by-Step Guide to Doing This Yourself

Now that you understand what money market funds are and the concept of a tax-equivalent yield, it’s relatively straightforward to do this optimization yourself.

Here are the 4 steps:

1. Find a list of money market funds at your broker

2. Calculate the tax-equivalent yields of each one for your situation

3. Pick the highest tax-equivalent yield

4. Revisit this periodically as yields keep changing

Let’s dive in:

Step 1: Find a List of Money Market Funds

There are literally thousands of money market funds to look at — but you typically don’t need to look at more than a handful.

I’d focus on the specific brokerage you are using — i.e. on Fidelity, look at Fidelity funds and ensure you have one fund in each category.

The categories to consider are:

• Taxable

• Tax-free on the federal level (munis)

• Tax-free on the state and local level (treasuries)

• Tax-free on the federal and state level (local munis) — these only exist for larger high-tax states like CA and NY

To help you get started, I’ll give you a list of funds that I look at:

Some notes:

• I’ve pulled from the Vanguard family of funds, but every provider has their own funds with relatively similar yields. These Vanguard funds have $3,000 minimums but most Schwab and Fidelity funds do not have minimums.

• The 7-day yield is pulled as of April 26 2025 from the fund websites. Keep an eye on this as these keep changing.

• VMFXX is not fully taxable and does contain some treasuries that will not be taxed on the local level. But it’s safer to assume that it iss fully taxable relative to VUSXX and be pleasantly surprised when it is not.

Step 2: Find the Tax-Equivalent Yield

The easiest way to do this is by using my Tax-Equivalent Yield Calculator.

This calculator is relatively accurate and up to date with 2025 federal and state tax brackets, but does not currently account for local and city taxes. If you want to factor those in, you may want to find a different calculator.

Plugging in taxable income of $250,000 and a New York state of residence, here are the yields I get:

Step 3: Pick the Highest Tax-Equivalent Yield

Based on this math, I’d earn more than a tax-equivalent yield of more than 6% by investing in VYFXX today!

Each and every one of these money market funds is paying me substantially more than I would earn with my high-yield savings account.

Two quick notes on muni money market funds like VMSXX and VYFXX:

• Safety: While these funds are also considered ultra-safe, they do carry marginally more risk than treasury money market funds since they are backed by local authorities versus the federal government.

  They are still considered to very conservative investments and have a lot of safeguards built-in. They have also historically never failed.

• Volatility: Yields on muni money market funds are more volatile and fluctuate more than treasuries. If you do hold munis, it’s worth keeping an eye on rates more frequently.

Step 4: Revisit this periodically

Once you put this in place, you want to periodically revisit this math as these yields keep changing.

Interest rates evolve, bond markets get repriced and the highest return keeps flipping, particularly as your own tax scenario changes.

I’d recommend looking at this at least once a quarter and whenever there is a material change in your financial situation.

Automated Products

If you would rather pay for the convenience of having an automated product that constantly looks for the best tax-equivalent yield tailored to your situation, my startup Carry is working on a solution.

We are launching a new product called Smart Yield in the next few weeks.

You enter in your state of residence and your taxable income, and we’ll automatically place your cash in the money market mutual fund with the highest tax-equivalent yield.

We’ll constantly keep an eye on how these rates evolve — and whenever we find an improvement of at least 10bps (or 0.10%), we’ll automatically move your cash for you.

Click here to sign up for the waitlist

We’ll be rolling invites out in the next few weeks.

Conclusion

Almost everyone can use this process to optimize their yield on uninvested cash. But for the average person, is the juice worth the squeeze?

This depends on three factors. If your answer to any of these questions is yes, I’d argue this is something worth doing:

• Do you pay taxes at one of the highest federal tax brackets?

• Do you live in a high tax state like New York or California?

• Are you holding a lot of cash at any given time?

You can either use an automated product or do this manually once a quarter and potentially keep thousands of dollars a year more.

That’s meaningful tax alpha for you.

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