Recently we have had several clients ask what they should do with their extra cash. This may be cash that is set aside for a short-term goal (1-3 years) or it could just be cash that has accumulated in the bank. While we make different recommendations for each client based on their risk tolerance and goals, there are generally three options for any excess cash you may have.

If You Have Short-term Goals
We usually consider a short-term goal to be within the next three years. Until recently there was not much you could do to earn any kind of meaningful return at a low level of risk. However, since mid-2022 interest rates have steadily risen giving us two safe (but not entirely risk-free) options for a return on cash.

1. CDs – Certificates of Deposit (CDs) are offered by banks and pay higher interest rates than savings accounts because you are committing to leaving the funds on deposit for a specific length of time. Although there are options to get your money back early, this often comes with some sort of penalty. The interest rate is typically guaranteed for the duration of the CD.The rate you will receive varies by the length of the CD and the institution, so it makes sense to shop around. This is where we can help because Schwab offers CDs from banks nationwide. We can purchase CDs in your Schwab account from multiple banks ensuring you do not exceed FDIC insurance limits. We are currently seeing CDs offering over 5% interest. When the CD matures, we will discuss if it makes sense to roll into another CD, distribute the cash, or make a different investment if there are changes to your goals.

2. Short-Term Treasury Bonds – Usually referred to as “Treasuries” or “T Bills” these are debt obligations back by the US government which makes them an extremely safe investment. Purchasing short-duration treasuries reduces their price volatility as well.

For those who have accumulated a stockpile of cash but have no short-term goals, we generally recommend that it be invested according to your current asset allocation in stock and bonds. Holding onto cash in the bank is often thought of as a safe move, but this can be riskier than investing that cash for time periods over the long run due to inflation risk. Another risk can potentially arise if you exceed FDIC insurance limits by holding too much cash at one institution.

If you have any questions about your current cash levels or your options for investing extra cash, please contact us!