Cash used to be the forgotten child of the investing world. For a decade, it sat in brokerage accounts earning basically zero. Nothing. Zilch. If you held the Schwab US Treasury Money Fund back in 2014, you were probably doing it for safety, certainly not for the yield. But things changed. Fast.
The Federal Reserve went on a tear. Interest rates climbed. Suddenly, that "boring" money market fund started looking like a powerhouse. When you're looking at the Schwab US Treasury Money Fund (SNSXX), you aren't just looking at a place to park your rent money. You're looking at a specific financial instrument designed for a very particular type of investor: the one who wants safety but hates paying state taxes.
What is the Schwab US Treasury Money Fund anyway?
Basically, it's a mutual fund that buys short-term debt issued by the U.S. government. Think Treasury bills. It's managed by Charles Schwab Investment Management, and its primary goal is to maintain a $1.00 net asset value (NAV). In plain English? They try really hard to make sure your dollar stays a dollar.
Is it guaranteed? No.
But it's about as close as you get in the investing world without having an FDIC sticker on it. The fund specifically invests at least 80% of its assets in U.S. Treasury securities. This is a big deal for people living in high-tax states like California, New York, or Oregon. Why? Because interest from U.S. Treasuries is generally exempt from state and local income taxes. If you’re in a 13% tax bracket in Cali, that "small" tax break adds up to a lot of extra sushi dinners over a year.
It's different from the Schwab Value Advantage Money Fund (SWVXX). That one buys "prime" paper—CDs, commercial paper from banks, and other corporate debt. It pays more, sure. But you pay state taxes on every penny. With SNSXX, you're trading a slightly lower yield for a cleaner tax bill and the ultimate credit quality of the U.S. government.
The yield trap and why people get confused
You'll see a number. Let’s say the 7-day yield is 5.02%.
You compare it to a high-yield savings account at an online bank that says 5.10%. You think, "I'll go with the bank!" Hold on. You've gotta do the math. This is where people trip up. You have to look at the Taxable Equivalent Yield.
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If you are in a high-tax state, a 5.00% yield that is state-tax-free might actually be worth more to your wallet than a 5.20% yield that gets taxed by your governor. It’s a bit of a shell game, honestly. Most people just look at the headline number and ignore the "after-tax" reality. Don't be that person. Use a calculator. Better yet, look at your last tax return and see how much your state took from your interest income. It’ll hurt, but it’ll make you appreciate SNSXX a lot more.
Risk is a weird word in this context
Let's talk about "breaking the buck."
It’s the nightmare scenario for money market funds. It happened in 2008 with the Reserve Primary Fund because they held debt from Lehman Brothers. But here's the thing: SNSXX holds Treasuries. If the U.S. Treasury defaults, we probably have bigger problems than our brokerage accounts. We’re talking "Mad Max" territory.
While it's technically possible for a money market fund to lose value, the Schwab US Treasury Money Fund is positioned in the safest possible slice of the market. It’s the "sleep well at night" fund.
How the fund actually operates day-to-day
Schwab’s portfolio managers aren’t day-trading these things for massive gains. They are managing liquidity. They need to make sure that if you click "sell" at 10:00 AM, your cash is ready to go. They ladder the maturities of the Treasury bills. Some might mature in seven days. Some in thirty. Some in sixty.
This laddering allows the fund to capture rising rates quickly. If the Fed hikes rates on a Wednesday, the fund’s yield starts creeping up almost immediately as the older, lower-paying bills mature and get replaced by shiny new ones.
Conversely, when rates fall, the yield drops. It's a mirror.
Comparing SNSXX to its siblings
Schwab has a whole stable of these things. You’ve got:
- SWVXX (Value Advantage): The high-yield sibling. More risk, more tax, more reward.
- SNOXX (Government Money Fund): Invests in Treasuries but also "Agencies" like Fannie Mae. These are usually taxable at the state level, so it’s sort of a middle ground that doesn't offer the tax perks of SNSXX.
- SWYXX (Treasury Obligations): Very similar to SNSXX but often used for institutional tiers or specific sweep accounts.
Most retail investors end up choosing between the Value Advantage and the Treasury fund. If you’re in a state with no income tax—hello, Florida and Texas—SNSXX loses its biggest advantage. In those states, you're usually better off with the higher-yielding SWVXX because you aren't worried about the state tax hit anyway.
The expense ratio: Why it matters (but not why you think)
The expense ratio for SNSXX usually hovers around 0.34%.
Some people scream that this is too high. "Vanguard is cheaper!" they yell. And yeah, Vanguard often is. But you have to consider the ecosystem. If your money is already at Schwab, the convenience of having your "dry powder" sitting in SNSXX, ready to buy stocks or ETFs instantly, is worth a few basis points to most people.
Also, Schwab often "waives" part of the fee if yields get too low to ensure the fund doesn't produce a negative return for investors. They did this for years when rates were at zero. They aren't doing it now because they're making plenty of money, but it's a safety net they've used before.
Liquidity: Can you get your money out?
Yes. It's pretty seamless.
Unlike a CD where your money is locked in a vault for six months, or a Treasury bill you bought directly from TreasuryDirect (which has a website that looks like it was designed in 1996), SNSXX is liquid. You sell today, the cash is usually settled and available by the next business day.
For many, this is the "emergency fund" spot. It’s out of sight so you don't spend it on a new TV, but it's accessible enough that if your water heater explodes, you can pay for it without a credit card.
The "Direct Treasury" alternative
I'd be remiss if I didn't mention that you can just buy Treasury bills yourself.
Schwab lets you do this. You go to the "Trade" tab, select "Bonds," and find the Treasury auctions. If you buy a 4-week T-bill directly, you pay zero management fees. None. You get the full yield.
So why does anyone buy the Schwab US Treasury Money Fund?
Simplicity.
Buying bills directly means you have to manage the rollovers. You have to decide which maturity to buy. You have to wait for the auction. With the fund, you just dump the money in and let the pros handle the rotation. You’re paying that 0.34% fee for the luxury of being lazy. Honestly, for most people, that's a fair trade.
What happens when the Fed starts cutting?
This is the big question everyone is asking right now.
When the Fed cuts rates, the yield on the Schwab US Treasury Money Fund will drop. It won't happen overnight, but within a few weeks, you'll see that 7-day yield start to slide. This is called "reinvestment risk."
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If you want to lock in high rates for a long time, a money market fund is the wrong tool. You’d want a long-term bond or a 2-year Treasury note. SNSXX is a "floating rate" experience. You go where the wind blows. If rates stay high, you win. If they crash, your income crashes.
A nuanced look at the tax-exempt status
Here is a pro-tip that many people miss: Not 100% of the income from a "Treasury" fund is always state-tax-exempt.
Every year, Schwab publishes a "Tax-Exempt Percentage" document. Usually, SNSXX is very high—often 100% or close to it. But sometimes these funds hold a tiny bit of "Repurchase Agreements" (Repos) backed by Treasuries. In some states, the income from Repos is taxable.
Always check the annual tax breakdown Schwab provides in January. Don't just assume. If you're reporting $10,000 in interest, you want to make sure you’re filing that "US Government Interest" deduction correctly on your state return. It’s a specific line item. If you miss it, you just gave the state a gift they don't deserve.
The psychological side of cash
There is something deeply satisfying about watching your "Cash & Cash Equivalents" balance go up every month without you doing anything.
In a volatile stock market, the Schwab US Treasury Money Fund acts as an emotional stabilizer. When the S&P 500 is down 2% in a day, your SNSXX balance is still there. It’s probably up a few cents. For retired investors or those saving for a house down payment, that stability is more valuable than any potential stock market gain.
Actionable steps for your cash
If you're sitting on a pile of cash in a standard Schwab brokerage sweep account (which often pays a pathetic 0.45%), you are losing money to inflation every single day. Stop it.
First, calculate your state tax rate. If it's high, SNSXX is likely your best bet. If it's zero or very low, look at SWVXX for the higher raw yield.
Second, check your liquidity needs. Don't put money in here that you need in two hours. Put money in here that you might need next week.
Third, automate it. You can set up transfers to move excess cash into the fund regularly.
Finally, keep an eye on the Fed. We are in a "higher for longer" era, but that won't last forever. When the yield on your Schwab US Treasury Money Fund starts dipping below the rate of inflation, it's time to move back into equities or longer-term fixed income. Until then, enjoy the "free" lunch that the tax-advantaged yield provides.
Move your idle cash out of the sweep account today. Even if it’s just $1,000, the habit of seeking the best yield for your risk profile is what separates successful investors from everyone else. Check the current 7-day yield on the Schwab website, compare it to your state tax burden, and make the swap. Your future self will appreciate the extra few hundred dollars in the account.