You have cash you want to keep safe and earn a little on. Two popular homes for it: SGOV, an ETF that holds short-term Treasury bills, and a money market fund, a mutual fund built to hold a stable $1 price. Both invest in safe, short-term paper. Both pay you roughly whatever short-term rates are at the moment. So the choice is not really about yield. It is about structure, fee, and taxes.
Here is the honest way to decide, and the one factor (your state tax rate) that quietly settles it for a lot of people.
What Each One Actually Is
SGOV is an exchange-traded fund. It holds a rolling basket of 0 to 3 month US Treasury bills, charges 0.09% a year, trades like a stock during market hours, and pays income monthly. Its price floats slightly with interest rates, though for an ultra-short Treasury fund the movement is tiny. You can hold it at any brokerage.
A money market fund is a mutual fund engineered to keep a constant $1 share price. Your balance does not visibly move; you just accrue yield daily. The fee depends on the fund, often in the 0.10% to 0.20% range for the big brokerage default funds. Two flavors matter: government money market funds (like SPAXX, VMFXX, or SNVXX) hold Treasuries and government repurchase agreements and are very safe. Prime money market funds hold short-term corporate paper, pay a touch more, and carry slightly more risk, including the possibility of redemption fees or gates in a crisis. For cash you actually need, stick to government funds.
The Differences That Decide It
| Factor | SGOV (ETF) | Govt money market fund |
|---|---|---|
| Fee | 0.09% per year | Usually 0.10% to 0.20% |
| Share price | Floats slightly | Stable $1 |
| Buy / sell | Trade during market hours, settles next day | Often instant if it is your broker's sweep |
| Idle cash earning | After you buy in | Automatic the moment cash lands (as a sweep) |
| State tax on income | Almost fully exempt (pure T-bills) | Partial. Only the direct-Treasury portion qualifies |
| Where you can hold it | Any brokerage | Often tied to one fund family |
Convenience Goes to the Money Market Fund
If a government money market fund is your brokerage's default settlement (sweep) fund, it is the most frictionless place cash can sit. The moment money lands in your account it starts earning, and you can buy other funds instantly without selling anything first. SGOV makes you place a trade to get in, and when you sell, the cash settles the next business day before you can redeploy it. For an everyday cash bucket you dip into often, that difference is real.
Taxes Go to SGOV, and It Can Be the Bigger Number
This is the part most comparisons skip. Income from US Treasuries is generally exempt from state and local income tax. SGOV holds actual T-bills, so almost all of its income qualifies for that state exemption. A government money market fund holds a mix of Treasuries and repurchase agreements, and the repo income usually does not qualify. So only part of a money market fund's payout is state-tax-exempt, and that share changes year to year.
In a no-income-tax state like Texas or Florida, this does not matter. In a high-tax state like California or New York, it can matter more than the fee. A larger state-tax exemption on SGOV can outweigh a money market fund's slightly different yield or a one or two basis point fee gap. If you live somewhere with a high state income tax, run the after-tax comparison, not the headline yield.
The Short Version
- Both hold safe, short-term government paper and pay roughly the same pre-tax yield.
- A government money market fund used as your sweep is the most convenient: instant earning, instant redeploy.
- SGOV's income is almost fully state-tax-exempt. Money market funds are only partially exempt, because of the repo portion.
- In a high-tax state, SGOV can win after tax. In a no-tax state, convenience usually wins.
- Skip prime money market funds for emergency cash. Government funds and SGOV are the safer lane.
Wondering whether to skip the fund entirely and buy Treasuries yourself? We worked through that in SGOV vs buying T-bills directly. Comparing SGOV specifically to Vanguard's settlement fund? See SGOV vs VMFXX.
Want the full picture on SGOV: holdings, yield, and our plain-English take?
See the SGOV fact sheet →