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Where Should You Park Your Cash?

Repeated interest rate hikes by the Federal Reserve since 2015 have boosted returns on some cash investments—so much so that three-month Treasury bills (which are considered a form of cash investment) were delivering their highest yields in more than a decade earlier this year.1

That doesn’t mean you should sell other investments to stockpile more cash; after all, past performance is no guarantee of future results. But it does mean the time is ripe to put your cash to work. How hard depends on your time horizon:

  • Everyday funds should be kept somewhere ultraliquid—think a standard checking or savings account. Such accounts have recently been earning just a fraction of a percentage point, however, so if you’ve got cash you don’t need for daily use, you might want to park it elsewhere.
  • Short-term reserves set aside to cover unexpected expenses could be invested in a money market fund—a very liquid type of mutual fund that invests in high-quality short-term debt securities such as Treasury bills. Although yields fluctuate, such funds strive to preserve the value of your investment, at the very least.
  • Money you won’t need for at least a month also could be appropriate for money market funds. However, certificates of deposit (CDs) might make more sense, depending on your time horizon. That’s because CDs offer higher yields the longer your cash is invested (though if you need the money sooner than expected, you may be charged an early withdrawal penalty). What’s more, CDs offer a fixed rate of return, which can be advantageous when interest rates are in decline.

“It helps to have a clear understanding of your choices,” says Rob Williams, CFP® and vice president of financial planning at the Schwab Center for Financial Research. “That way, you can put your cash to the best possible use.”

1Federal Reserve Bank of St. Louis, as of 04/22/2019.

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Important Disclosures

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. Fixed‐income 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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