Retirees Are Choosing These Monthly Income ETFs Over High-Yield Savings Accounts

Look, I understand the appeal of High-yield savings accounts (HYSAs), especially if you have a low risk tolerance and your primary concern is preserving your principal.

HYSAs are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration up to $250,000, per depositor, per insured institution. Even money market mutual funds, which maintain a $1 per share net asset value (NAV) and are generally considered very safe, don’t offer that same level of principal protection.

Still, there are trade-offs. Rates on HYSAs can vary widely, and many unsuspecting retirees end up accepting lower yields while their bank quietly keeps the spread. Promotional rates don’t always last either, and what looks attractive today can drop quickly.

If you’re willing to accept a small amount of principal fluctuation, there are fixed-income ETFs that can offer competitive yields while still keeping risk relatively low. They’re not insured like a savings account, but in practice, they’re among the least volatile ETFs available.

Here are three options to consider: one focused on maximizing yield, one offering state tax advantages, and one providing federal tax benefits.

Ultra-Short-Term Bonds

The first “one size fit all” option is the Vanguard Ultra-Short Bond ETF (CBOEBZX: VUSB).

This ETF focuses on fixed-income securities with an average duration of about one year. That means it has very limited sensitivity to interest rate changes. Rising rates won’t hurt it much, and falling rates won’t provide a significant boost either.

Credit quality is solid. Roughly 20% of the portfolio is AAA-rated, about 6% is AA, 36% is A, and 33% is BBB. All of these fall within investment-grade territory, which helps keep risk relatively low.

After accounting for a modest 0.10% expense ratio, VUSB currently offers a 4.28% 30-day SEC yield. That yield will move in line with short-term interest rates.

Treasury Bill ETF

If you want exemption from state income taxes, the State Street SPDR Bloomberg 1–3 Month T-Bill ETF (NYSEARCA: BIL) is a strong alternative.

It has even lower interest rate sensitivity than VUSB, with a duration of just 0.14 years. Credit quality is also as high as it gets, since the holdings are backed by the U.S. government.

While Treasuries are now rated AA following a downgrade, they are still widely considered among the safest assets available. The ETF’s NAV isn’t fixed, but in practice, it remains fairly stable.

After a 0.1353% expense ratio, BIL currently offers a 3.5% 30-day SEC yield. That’s lower than VUSB because you’re not taking on corporate credit risk.

Short-Term Municipal Bonds

If your priority is federal tax efficiency, the iShares Short-Term National Muni Bond ETF (NYSEARCA: SUB) is worth considering.

This ETF holds more than 2,700 municipal bonds issued by states and local governments, including Texas, California, New York, Illinois, and others. The bonds span sectors like utilities, transportation, education, and general obligation debt.

Maturities range from 0 to 6 years, with an average duration of about 1.85 years. That makes it slightly more sensitive to interest rate changes than the other two options, but still relatively stable.

It’s also the lowest-cost option of the three, with a 0.07% expense ratio. At first glance, the 2.4% 30-day SEC yield may not look impressive. But the more relevant metric is the tax-equivalent yield.

Because municipal bond income is generally exempt from federal income taxes, the effective yield can be much higher depending on your tax bracket. iShares estimates that SUB’s tax-equivalent yield is around 4.06% for investors in the highest federal tax bracket.

How to Pick the Right ETF

Before making the switch from a HYSA to monthly income bond ETFs, it helps to step back and look at your full retirement picture.

1. If your priority is stability with a modest boost in yield, an ultra-short bond ETF like VUSB can act as a step up from cash. You take on a bit of credit risk, but in exchange you get a higher income stream that still tracks closely with short-term rates.
2. If your focus is capital preservation with tax efficiency, a Treasury bill ETF like BIL keeps things simple. You give up some yield, but you gain state tax exemption and exposure to some of the safest assets available.
3. If you’re in a higher tax bracket and want to maximize after-tax income, a municipal bond ETF like SUB may be the better fit. The headline yield looks lower, but once you factor in tax savings, the income can be competitive.

Each of these options assumes you’re willing to accept slightly more risk than a fully insured savings account in exchange for higher income potential. The key question is how that trade-off fits into your broader retirement plan. If you’re not sure how to balance income, taxes, and risk across your portfolio, it may be worth speaking with a financial advisor.