Many small investors are holding larger-than-normal amounts of cash now as a buffer against a volatile stock market that is near all-time highs and loads of economic uncertainty. Major brokerage firms, including Fidelity and Schwab, are holding more than $3 trillion in money-market funds. But there’s a cheaper, more tax-efficient and profitable alternative to consider—invest your cash in an exchange-traded fund (ETF) that holds US Treasury bills (T-bills), which are nearly risk-free federal government bonds maturing anywhere from one week to one year.
How they work: These ETFs, which trade like stocks, invest in a portfolio of T-bills. T-bill ETFs provide a few major advantages over comparable money-market funds…
Lower fees, which allow them to offer slightly higher yields. Many of these ETFs charge annual expense ratios less than 0.1% versus the Fidelity Government Money Market fund, which charges 0.42% and the Schwab Prime Advantage Money fund, which charges 0.34%.
Yields from T-bill ETFs are exempt from state and local taxes, which is especially appealing if you live in a high-tax state such as California and New York.
Caveats: T-bill ETFs share a similar disadvantage with money-market funds. If the Federal Reserve cuts short-term interest rates later this year, as it has indicated it could, yields on the ETFs also will shrink. And while you can buy US Treasury bills directly for yourself for no fee at TreasuryDirect.gov, that requires more vigilance than you may want because you must regularly purchase new bills as the old ones mature.
Bottom line: Not only do the ETFs simplify the process and provide diversification, but you also get greater liquidity because you can trade them anytime the stock market is open. Two T-bill ETFs to consider now…
iShares 0-3 Month Treasury Bond ETF (SGOV). Expense ratio: 0.09%. Recent one-year yield: 4.71%.*
Vanguard Ultra-Short Treasury ETF (VGUS). Expense ratio: 0.07%. Recent yield: 4.18%.
*Performance figures are through July 1, 2025, and courtesy of Morningstar, Inc.
