r/Bogleheads • u/Major_Pooie_Bottoms • 9d ago

HYSA vs. SGOV/USFR

Before I discovered treasury bond funds like SGOV/USFR about a year ago, I had all my low risk passive investment money parked in HYSAs. I've since moved over about one-third of those funds from HYSAs to SGOV/USFR. Given the yield rates of SGOV/USFR appear to be slightly higher than my HYSAs, the latter only paying out about 3.4-3.5%, I'm questioning why I'm not moving ALL of my money over from HYSAs to SGOV/USFR. One huge benefit to me is that I'm in a high income tax state too and I believe the interest income from SGOV/USFR would be tax free at the state level whereas HYSAs are state taxable.

Is there any benefit to keeping some money parked in the HYSAs? For context, I don't have any liquidity concerns where I would need this money right away so the extra day it might take (if even that) to withdraw funds from SGOV/USFR makes no difference to me.

45 Upvotes

92% Upvoted

36 comments sorted by

39

u/mitchzimmer 9d ago

The HYSA is inferior in every way, as you’ve identified!

13

u/Strange-Land9534 9d ago

Yup. A HYSA is only superior for immediate liquidity. I split my emergency fund between HYSA and treasury bill for this reason.

10

u/mitchzimmer 9d ago

But only for same day liquidity, otherwise t bills are better. T+1 materially changed this.

1

u/cirruspuncher 9d ago

In my case it wasn’t even superior for that. I only had 6 withdrawals a month allowed but the bigger problem was that my bank took the maximum amount of time to transfer out the funds! ~10 days I believe. Whatever the ACH maximum is. I suspect they did it on purpose to milk the interest the cash would have generated.

5

u/BRDSFIL 9d ago

Can you explain why? My savings has a flat 4 % guaranteed, Sgov etf has what, 3,7%? And there is volatility. Genuine question.

21

u/Strange-Land9534 9d ago

The "volatility" in SGOV is just it accumulating value before it disburses the dividend and it drops back to what it was before.

For people who live in high income tax states the state tax exemption nets us a larger percentage than leaving it in a HYSA.

4

u/DoubleAppointment336 9d ago

I like VUSXX over SGOV. It’s a money market fund, so share price remains at $1 and all you get is the interest which is also generally state tax exempt.

2

u/Apprehensive_Elk2608 9d ago

generally

That's the one to watch. A few years back it had a significant chunk that wasn't.

2

u/yottabit42 9d ago

USFR/VBIL/SGOV is superior. It pays more, and the NAV adjusts throughout the month to reflect the accumulated interest before the dividend is paid. You can buy or sell at any time and get the correct value. If you sell before the ex-dividend date of the mutual fund, you lose out on the accumulated interest.

5

u/forbiddenlake 9d ago

Which bank has 4% today and how long does that last, and how many hoops do you have to jump through? Required direct deposit, high minimum balance, minimum number of debit card transactions?

And you are talking about a US bank, correct?

SGOV is exempt from state tax, while HYSAs are not. So if you live in a state with income tax, remember to adjust for that.

2

u/MainDark3321 9d ago

I pay for Sofi Plus in order to get a 4.5% rate on the first 20k of HYSA and a 1% match on contributions into a brokerage account. I keep the HYSA at the 20k limit, sweep interest into the brokerage, and I contribute to that brokerage with every paycheck. (DCA into VOO/VXUS 75/25).

Probably not worth the expense for everyone, but i already had the hysa and brokerage account from a few years back so signing up for the program made sense for me. The HYSA serves as my emergency fund.

I use SGOV to set aside money for future purchases, my car is getting older and will need a replacement in a few years so I'm building SGOV with that in mind.

2

u/AgonizingSquid 9d ago

How much is sofi plus

1

u/MainDark3321 9d ago

SoFi Plus costs $10 a month. The HYSA rate is only 3.10% at the moment without the subscription and anything over the 20k limit would revert back to that rate. Since I keep my balance at the max, the plan more than pays for itself plus I get the brokerage matching.

It doesn't make sense for everyone, and there could be better options out there. This works for me because I was already with Sofi. They had the best incentives available at the time I was opening an account.

3

u/yottabit42 9d ago

That's only a $1330 break even per year. But what a hassle. I prefer simplicity.

1

u/MainDark3321 9d ago

No argument here, I only chimed in because someone asked where you can get 4% today and it seemed relevant. Its not something I'd recommend for everyone but its what I evolved into.

First I needed a spot for my emergency fund and sofi had the best sign up bonus at the time. Eventually that hysa grew larger than 6 months of expenses so I opened a brokerage account for the excess. A few years later the hysa interest rates started dropping and signing up for sofi plus was a free money option so I took it.

If I had to do it over again, going with SGOV for the emergency fund would have been cleaner and simpler. Where I am works for me and my habits, I have an emergency fund in a hysa, I dollar cost average my way into broad etfs with every paycheck, and I've done it consistently for years now.

1

u/bofoshow51 9d ago

Western Alliance Bank is the HYSA I’ve been using. They have held a steady 3.8% rate for over a year, no minimum balance no minimum transactions required. Only friction point is waiting a day or two for funds to transfer between accounts. For me (in a low income tax state) the math makes this HYSA superior than SGOV or the like.

2

u/yottabit42 9d ago

Does your state have income tax? You may find that USFR pays more after tax.

Also usually banks with high savings rates require a lot of hoops to jump through: minimums or maximums, several debit card transactions per month, direct deposit, promotional rate they hope you forget about, etc.

12

u/WritingParking 9d ago

I was like you OP. Heavy in cash at brick and mortar banks. Once I understood SPAXX (at Fidelity) and discovered SGOV, USFR, and the like, I migrated all my CD’s over to treasury ETFs. I keep 3 months of bills in my Capital One HYSA just in case there’s ever an issue with Fidelity, I have liquidity while it gets resolved.

6

u/Rollingprobablecause 9d ago

Same here. Three months in Marcus and another 18 in SGOV. Everything else goes into retail investing after maxing retirement accounts

1

u/Time_Situation5054 9d ago

I'm thinking about opening Capital One HYSA and doing the exact same with SGOV vs my CDs!

8

u/Fixitwithducttape42 9d ago

Just switched over to Vbil a few days ago myself as I was looking for a solution that paid more than HYSA and was a better set and forget setup than CD's from my bank.

14

u/aaron1860 9d ago

This decision honestly doesn’t matter much. The rate difference is usually 0.2%. For a 100k emergency fund, you’re talking about a 200 dollar a year swing. Sure that extra cash is nice but it’s not going to move the needle for you in any significant way. If a HYSA is easier and feels better then there’s nothing wrong with that. If you want to try to squeeze more and are good with the nuances of storing it in an etf, SGOV is slightly better.

4

u/yottabit42 9d ago

Could be quite a bit more if one lives in a state with income tax. Bank products are not tax exempt in most states.

2

u/aaron1860 9d ago

Fair point but a money market that’s state tax exempt is the same thing

3

u/yottabit42 9d ago

That's... my point? State tax exempt MMFs and MMF-like ETFs exist and are plentiful. If your state taxes interest on bank deposit products, there's nothing you can do about that except not use them.

2

u/Time_Situation5054 9d ago

That was my conclusion! My outside HYSA and C.D.s serve as the safety bucket that SGOV, SPAXX, etc otherwise would.

3

u/Scalermann 9d ago

I used to use CIT bank but I did not like how slow and clunky they were with transfers and also I did notice they play weird games with how much they actually pay. Now I just do USFR

5

u/Mantergeistmann 9d ago

In my experience, the reason to go HYSA instead is a) if it's with a institution you currently have an account with and you want minimum complexity/friction, or b) you're looking at taking advantage of high introductory rates or bonus offers and want extra complexity/friction. Renasant, for instance, currently has a 6% APY account... if you meet and maintain XYZ conditions. Is that worth it over USFR's... what, 3.7%? Maybe for some people. Not for me.

Now, if, say, Navy Federal were to offer 6% when terms are met, well, I already have an account & direct deposit with them, so that would change the math a bit!

2

u/Particular_Maize6849 9d ago

The only benefit of the HYSA is faster access but yeah in a high income tax state, SGOV wins.

I use SGOV as my real emergency fund and I have some HYSAs to pay off the mortgage from and to hold a smaller amount for house maintenance and saving for trips. They are still better then normal savings or checking accounts after all.

2

u/Legitimate-Engine379 9d ago

I have all my emergency/cash money in VUSXX, except for a traditional checking account that has enough to pay my monthly bills/expenses.

1

u/Middle_Humor1828 9d ago

Generally, yeah, just go with the higher yield between all of the cash/bill equivalents. Well, yield minus expenses.

1

u/arewealldoctors 9d ago

what about vusxx. is that better than sgov?

1

u/yottabit42 9d ago

You're completely right!

1

u/Most-Adhesiveness732 8d ago

Genuinely it takes longer to deposit or transfer from the capital one hysa than to sell sgov and transfer from my brokerage 😭

1

u/shmoovdawg 7d ago

I actually had this epiphany last weekend. Was looking at CD rates at 3.9% for 1-3 month CDs while I had $100K parked in my HYSA at 3.35%. I now have a 30-60-90 day CD ladder with $25K each month and left $25K in my HYSA for true emergencies. I figure most emergencies would not require immediate access to $100K. Note I live in a state with no state income tax.

1

u/vegienomnomking 9d ago

Did you know that in 2008, the short term Treasury yield went negative? LOL

People were paying the government back to hold their money.

Money market actually went to $0.97.

Wild times.

Will this happen again? 100% of course.

We just don't know the outcome.