Why I cancelled the high-yield savings account and moved to a money market fund

I had $40K in a 4.25% HYSA for two years. Last quarter I moved it to a money market fund. Why the math changed, what got better, and the one risk people skip.

Two years ago, opening a high-yield savings account was the obvious move. Rates were climbing, the big brokerages were paying 4.5% on idle cash, and the alternative was 0.01% at the traditional bank. I parked an emergency fund and called it done.

Then rates moved. By the time I was paying real attention again, the HYSA had quietly slipped to 3.75%, and the money-market fund at the same brokerage was paying 4.6% on the exact same dollars. The HYSA's marketing rate ("earn up to X%") was a teaser. The everyday rate had fallen behind.

Where the difference comes from

A high-yield savings account is a bank product. The bank sets the rate based on what they need to pay to attract deposits, which is competitive but lagging. They make money on the spread between what they pay you and what they lend at.

A money market fund holds short-term Treasuries and commercial paper directly. Its yield tracks the actual short-term interest rate, with a small management-fee shave off the top — typically 0.10-0.20%. When short-term rates rise, you feel it in the yield within weeks. When they fall, same thing in reverse.

In a rising-rate environment, HYSAs are competitive because banks have to chase. In a stable or slowly falling environment, money markets win because their yield is closer to the underlying instrument.

What got better

• Yield went from 3.75% to 4.6%. On $40K, that's about $340/year. Real money but not life-changing.
• Same brokerage as my investing account. Moving between the money-market fund and my taxable brokerage takes 30 seconds. Moving from a separate HYSA took 2-3 days.
• Sweep functionality. Idle cash in the brokerage automatically sweeps to the money market overnight. The HYSA required a manual transfer.

The risk people skip

Money market funds aren't FDIC-insured. They're SIPC-protected (up to $500K), which is different. SIPC covers if the broker fails. It doesn't cover if the underlying fund "breaks the buck" — meaning the share price drops below $1.00, which has happened twice in modern history during severe stress (2008 being the famous one).

The likelihood is low for a major money market fund holding Treasuries. But it's not zero, and FDIC at a bank is zero. If you can't tolerate that — say, your entire emergency fund is in one place — keep some in an FDIC account just for that protection. I keep one month of expenses in an FDIC bank account; the rest sits in the money market.

What I'd recommend

If you have an emergency fund in a HYSA right now and you're happy with the rate, leave it. The convenience of an integrated brokerage account is real but minor. If you're already at a major brokerage (Fidelity, Vanguard, Schwab, Wealthsimple), check what their default cash sweep is paying right now, and check the same brokerage's money market fund yield. If the money market is 30+ basis points higher, the math is doing the work for you.

One book worth reading if any of this is new: The Little Book of Common Sense Investing by Bogle ($15). Get the basics down before optimising the last 50 basis points. Asset allocation matters more than vehicle choice.

For the parallel piece, see how I'd build the full HYSA stack today.