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HYSA vs. Brokerage Account: Which is Better for You?

HYSA_vs_brokerage_account

By J.R. Robinson, Financial Planner (September 2025)
Checking and savings accounts at local banks, along with bank deposit sweep accounts at most brokerage firms, pay little or no interest—often just 0.02% to 0.85% APY—making them poor choices for those who want their idle cash to earn meaningful yield in 2025. Today, the two most commonly recommended alternatives are high yield savings accounts (HYSAs) offered by online banks and brokerage money market funds with both typically offering yields in the 3%-4.0% APY range with no
meaningful reduction in safety. These yield advantages come with a slight trade-off in liquidity: HYSAs
generally require 2–4 business days to transfer funds to a local checking account, while brokerage accounts require T+1 settlement (two business days) to move money between sweep and money market funds and/or to transfer funds in or out of the brokerage account. [1][2][3][4][5][6]

The Federal Reserve’s recent reductions in short-term rates, have made HYSAs less appealing, as cited in a September 21, 2025 MarketWatch article, “Gen Z fell in love with high-yield cash savings. The Fed just crashed the party.“ While brokerage money market fund yields are also affected by rate cuts, this article details why I still give the nod to brokerage accounts with T+1 money market funds at major custodians such as Charles Schwab and Fidelity over Iinternet bank HYSAs. [7]

After-Tax Yield: HYSA vs. Treasury Money Market Fund
Adjust assumptions to reflect your state taxes, federal bracket, and deposit size. Treasury MMF interest is typically state-tax exempt (to the extent of Treasury holdings).
After-Tax Rate – HYSA
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After-Tax Rate – Treasury MMF
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After-Tax Annual Income – HYSA
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After-Tax Annual Income – MMF
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Liquidity & Access
• HYSA transfer to local checking: typically 2–4 business days.
• Brokerage MMF: trades settle T+1; cash out to linked bank typically 1–2 business days after settlement.
Timelines vary by institution and cut-off times.
Tax Treatment (Taxable Accounts)
• HYSA interest: taxable at federal + state levels.
• Treasury MMF dividends: generally federal-taxable and state-tax exempt in proportion to Treasury holdings.
For non-Treasury/government MMFs, state exemption may be partial or none.
This tool is educational and simplifies taxes (e.g., ignores phase-outs, NIIT, local taxes). Verify fund holdings and your tax situation before relying on estimates.

Efficiency & Simplified Tax Reporting

Brokerage accounts allow investors to hold multiple cash equivalent investments—such as laddered CDs and money market funds—within a single account, generating just one consolidated 1099 tax form for all interest and money market dividends earned. In contrast, each CD and HYSA at an online bank requires separate accounts and generates distinct 1099-INT forms for each, thus complicating tax reporting. [5]

Flexibility, Account Features, & Registrations

Brokerage cash management accounts at major custodians (Schwab, Fidelity) offer unparalleled flexibility and benefits. These include free unlimited checking, debit cards with ATM fee reimbursements, and international ATM access with no or nominal foreign exchange markups. While a few online banks (e.g., Ally Bank) offer similar competitive features, most restrict account registrations, do not accommodate beneficiary designations, and rarely offer registrations such as revocable trusts, joint tenants by the entirety, or corporate accounts. In contrast, Schwab and Fidelity support complex registrations and transfer-on-death beneficiary designations for a wide range of account types. [5]

FDIC Limits & Safety for Large Depositors

FDIC insurance coverage presents a limitation for large depositors in online banks, as was made evident by the Silicon Valley Bank collapse. Proponents of online banks may note that brokerage money market funds entirely lack FDIC insurance, but if the money market fund is invested exclusively in short- term U.S. government securities, the fund is effectively as secure as holding treasuries and can accommodate nearly any investment amount. [7]

State Income Tax-Exemption in Taxable Accounts

For clients in high income tax states, brokerage money market funds invested solely in short-term treasuries may provide a yield advantage over taxable HYSAs, as treasury interest is exempt from state income tax and passes through to investors in these funds. For a detailed discussion of government money market fund distinctions, see the article I wrote for the FPH Blog earlier this year: “Government Money Market Funds Are Not All The Same”. This benefit is immaterial for folks who live in low- or no-income tax states or for deposits held in retirement accounts. [8][6][5]

Conclusion & Important Caveat

This article has outlined a compelling case for favoring brokerage accounts at the major asset custodians over Internet bank HYSAs for savvy cash management. However, while brokerage money market funds have many advantages, consumers should also be aware that their attractiveness is decidedly not the result of any act of benevolence by the asset custodians . This point was made explicitly clear in Walls Street Journal columnist Jason Zweig’s eye-catching March 2025 story, “Your Money Market Fund is Ripping You Off”. In it, he describes how Schwab and Fidelity use money market funds as profit centers, reducing investor yields by as much as 20–30 basis points purely to increase firm revenue, which means investors may not receive the best possible rates. Nonetheless, for Financial Planning Hawaii clients seeking to maximize their cash efficiency, especially with substantial deposits, corporate cash, or in states with high income tax rates, brokerage T+1 money market funds—when carefully selected—offer meaningful advantages over Internet bank HYSAs. [5]

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru.

  1. https://www.tiaa.org/public/invest/financial-products/brokerage-accounts/interest-rate-disclosure
  2. https://www.wellsfargoadvisors.com/financial-services/account-services/cash-sweep/rates.htm
  3. https://www.nerdwallet.com/best/banking/high-yield-online-savings-accounts
  4. https://www.reddit.com/r/fidelityinvestments/comments/1l4b963/money_market_funds_by_yield_as_of_early_june_2025/
  5. https://www.investopedia.com/vanguard-fidelity-or-schwab-which-one-pays-the-most-on-your-cash-right-now-11743580
  6. https://www.schwabassetmanagement.com/products/money-fund-yields
  7. https://www.marketwatch.com/story/gen-z-fell-in-love-with-high-yield-cash-savings-the-fed-just-crashed-the-party-76efc1b4
  8. https://www.schwab.com/money-market-funds
  9. https://finance.yahoo.com/personal-finance/banking/article/best-money-market-account-rates-today-sunday-september-21-2025-100016782.html
  10. https://fortune.com/article/best-savings-account-rates-9-18-2025/
  11. https://www.ameriprise.com/products/cash-cards-lending/brokerage-sweep-options
  12. https://www.schwab.com/cash-investments
  13. https://www.ubs.com/us/en/wealth-management/misc/account-sweep-yields.html
  14. https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
  15. https://www.schwab.com/legal/sip-sweep-current-interest-rates
  16. https://www.investopedia.com/high-yield-savings-accounts-4770633
  17. https://digital.fidelity.com/prgw/digital/fdic-interest-rate/fcma
  18. https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/
  19. https://www.massmutual.com/investment/cash-sweep-programs
  20. https://finance.yahoo.com/personal-finance/article/best-high-yield-savings-interest-rates-today-sunday-september-21-2025-100005616.html

John “J.R.” Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii and is a co-founder of personal finance software maker Nest Egg Guru.