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Where Should You Hold Your Cash?

In today’s volatile environment, cash has a special role to play in your financial life and portfolio—it can offer liquidity, stability and flexibility.

But where do you hold your cash? At the end of the day, how you intend to use the cash will help you determine the smartest place to put it. There are a number of choices and what you ultimately select depends on considerations like your time horizon, ease of access, insurance, and yield.

Here’s our guide to helping you choose the most appropriate place for both your everyday cash and your savings and investment cash.

Everyday cash

Everyday cash is money you need for day-to-day expenses, paying bills, and investing. Typically, ease of access is of top importance. There are a couple of account types to consider.

  • A checking account can help cover daily spending needs, check-writing, and ATM usage. Bank checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC), an independent agency of the US government, against the loss of up to $250,000 per depositor, per insured bank, based on account ownership type (e.g. joint accounts)  if the FDIC-insured bank were to fail.
  • A brokerage account. Uninvested cash from this type of account earns interest and is available for investing or managing expenses. Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade. Assets in your brokerage account are protected up to $500,000 per investor, including a maximum of $250,000 in cash, by Securities Investor Protection Corporation (SIPC), in the event a SIPC-member brokerage fails.

Savings and investment cash

Savings and investment cash is money you need for an emergency fund (three to six months of living expenses) or a specific short-term goal like a car or a down-payment on a house. It can also be used as a key component of a diversified portfolio, to help reduce portfolio risk and provide stability.

There are a few options to consider for your savings and investing needs.

  • A yield-bearing savings account from a bank can be used for cash that you’ve set aside for an emergency or that you’re planning on moving to a checking account soon. A yield-bearing savings account probably won’t offer the highest yield, but you’ll be able to access your cash immediately (although withdrawals and transfers to other accounts are limited to six per month, barring certain exceptions). Savings accounts are insured by the FDIC against the loss of your money up to $250,000 per depositor, per FDIC-insured bank, based on account ownership type.
  • A purchased money fund is a type of mutual fund designed to keep your capital stable and liquid. Such funds invest primarily in high-quality, short-term debt securities. If you’re willing to wait a day to access your cash, you might consider buying money funds as part of a diversified portfolio because they can offer higher yields than a savings account. Although yields fluctuate, such funds strive to preserve the value of your investment. That said, money funds are not FDIC insured.
  • A Certificate of Deposit (CD) is a type of savings account issued by a bank that offers you a fixed rate of return in exchange for locking away your funds for a set period of time (the “maturity date”), generally between 3 months and 5 years. CDs may be appropriate if you have a long-time horizon or know you won’t need the money immediately. As a rule, the yield on a CD is higher the longer your cash is invested and is typically, but not always, higher than yields on individual U.S. Treasury bonds or purchased money funds. However, if you need to withdraw the money sooner than expected, you may be charged an early withdrawal penalty. CDs are insured by the FDIC against the loss of your money up to $250,000 per depositor, per FDIC-insured bank.

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Important Disclosures

Securities Products: Not FDIC Insured • No Bank Guarantee • May Lose Value

Investors in money market funds should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. Please read it carefully before investing.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Fixed-income securities are subject to increased loss of principal during periods of rising interest rates. Fixedincome investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The S&P 500 Index is a market-capitalization weighted index that consists of 500 widely traded stocks chosen for market size, liquidity and industry group representation.

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