A high-yield savings account does one thing beautifully: the money is easy to reach, and eligible deposits are insured. Keep the cash you might need for bills or an emergency there. But the headline APY is a before-tax number. In a high-tax state, the real contest for the rest of your cash is what you keep after federal and state tax, without trading away safety or access you actually need.
FDIC insurance feels like the trump card. But the Treasury-based alternatives carry the same base risk FDIC does: the US not defaulting. If that goes, both go. The box is a different animal - cleared through the OCC, not backed by Treasuries, with its own exit and broker risks.
Here are the three bids.
VUSXX is the simple Treasury-focused money-market option. It targets a stable $1 share price, trades at end-of-day NAV rather than intraday, and avoids an ETF’s bid/ask spread. Distributions are ordinary income federally, but the qualifying US-government-obligation portion can be state-exempt - Vanguard reported 100% for 2025 (recheck each tax year, and your state’s rules). It’s a fund, not an FDIC deposit. Watch purchase fees outside Vanguard: Schwab’s schedule shows transaction-fee funds up to $49.95-$74.95 per online buy. At Schwab, compare SNOXX (Treasury obligations) - not SWVXX, which is a prime fund.
SGOV is the portable, exchange-traded bid. Very short Treasuries, sells in seconds during market hours, any brokerage. Its 2025 US-government-source share was 95.14% - potentially state-exempt to that extent. Monthly distributions stay ordinary federal income; a gain or loss on the shares themselves is capital. Sell at a loss and rebuy within 30 days and wash-sale defers it. The price moves, there’s a spread, no deposit insurance.
The advanced bid is a fully funded LONG SPX box spread: pay a discounted amount for an options position with a fixed payoff on a set date - lending into the options market, not a short-box margin loan. Appeal: a known maturity payoff, and potentially Section 1256’s 60/40 federal split if the contracts qualify. California taxes capital gains as ordinary income, so the benefit is federal only. Get a CPA to check the exact trades before claiming it. Least cash-like of the three: options approval, four-leg execution as one complex order, commissions. You can exit early, but at that day’s price - a rate move or spread can erode the return. The fixed payoff is for holding to settlement.
THE MATH - a scenario, not a live shopping list. CA household, 37% federal / 13.3% state, 20% LTCG, NIIT excluded (check whether it applies to each income type before adding it):
- HYSA 4.25% x (1 - .37 - .133) = 2.11%
- VUSXX 3.69% x (1 - .37) = 2.32% (assuming the 100% state-exempt share holds)
- SGOV 3.67% x (1 - .37 - .133 x .049) = 2.29%
- Long box 4.15% x (1 - .268 - .133) = 2.49% - only if 1256 applies. Starts from a 4.11% bank-discount 13-week auction (~4.21% yield) minus 6bps assumed slippage. No executable quote verified.
That ranks box > VUSXX > SGOV > HYSA, but the box’s lead over VUSXX is ~0.17pt before unmodeled execution costs. A better actual HYSA rate, lower bracket, fund purchase fee, or a bad box fill flips the order. Yields above are dated snapshots with different conventions.
The play: keep the immediate-use cushion in insured deposits. Run the rest through matched-date, after-tax, net-cost math against your actual bracket and withdrawal needs. The best alternative is the one that keeps you the most without making the cash fail its job.
Assumptions
Compare what you keep, using the same dates and the same cash job. These are scenario inputs, not executable offers.
- Yields and rates: The illustration uses HYSA 4.25%, VUSXX 3.69%, SGOV 3.67% and a long-box 4.15%; ordinary federal tax 37%, California 13.3% and long-term federal tax 20%. It excludes NIIT and does not model federal deductibility of state taxes. APY, SEC yield and box maturity yield are different conventions; a decision needs matched-date quotes and an identical holding period.
- Arithmetic: HYSA: 4.25% x (1 - 0.37 - 0.133) = 2.11225%. VUSXX: 3.69% x (1 - 0.37) = 2.3247%. SGOV uses the rounded 4.9% state-taxable share: 3.67% x (1 - 0.37 - 0.133 x 0.049) = about 2.29%. For a qualifying Section 1256 box, the assumed federal rate is 60% x 20% + 40% x 37% = 26.8%; 4.15% x (1 - 0.268 - 0.133) = 2.48585%. Results round to 2.11%, 2.32%, 2.29% and 2.49%. The box-VUSXX gap is about 0.16 percentage point from unrounded inputs, or 0.17 from displayed results.
- State exemption: Vanguard’s 2025 report gives VUSXX 100%; iShares’ 2025 report gives SGOV 95.14%, leaving 4.86% before rounding. These are income-source percentages for 2025, not promises for 2026. State qualification tests still apply.
- Box and costs: The 4.15% input assumes about 4.21% yield from a 4.11% bank-discount 13-week auction minus 0.06 percentage point of slippage. That conversion needs the actual settlement dates and day-count convention; no executable four-leg quote is supplied. Form 6781 is the starting point for qualifying-contract treatment, not proof every trade qualifies. Commissions, spreads, early exit and tax timing can change the result.
- Other numbers: VUSXX’s $1 is a target NAV, not deposit insurance. The $49.95-$74.95 purchase-fee range is the article’s dated broker example, not a confirmed charge on your account. Recheck the exact ticker, broker and trade preview. A purchase fee can swamp a small yield advantage. Wash-sale testing covers the 30 days before and after a loss sale, including relevant other accounts.
Have better inputs, a missing cost or evidence that changes the result? Share it . We will update our assumptions and conclusions to reflect the most accurate representation.