cash: where to hold it, and why
There are three buckets of cash everyone needs: Operating cash, emergency reserves, and extra cash for planned expenses like car purchases or home improvements. Before we dive into where to hold each bucket, let's look at the potential places you can hold your cash.
Acceptable places to hold cash
- Banks and Credit Unions (FDIC / NCUA Insured)
Checking accounts
High-yield savings accounts
Money market deposit accounts
Certificates of deposit (CDs)
- Brokerage Firms (SIPC Protected) - options that pay higher rates but may take longer to access:
Treasury bills (T-bills)
Government money market mutual funds
Brokerage cash sweep programs
- U.S. Treasury Securities - Best for cash that will not be needed immediately.
Treasury bills
Treasury Inflation-Protected Securities (TIPS)
US savings bonds
- Other
- Multi-Year Guaranteed Annuities (MYGAs) Appropriate for longer-term “cash-like” money that is not needed for daily access. Note tax consequences for early withdrawal. See MYGA page for more details.
- Cash value life insurance (excluding cash values held in variable funds)
Recommended locations for each bucket
Bucket | Time Horizon | Recommended Location | Why |
Operating Cash | Immediate | Checking account (local bank or credit union with preference toward institutions with high financial strength ratings like Chase, Bank of America and US Bank) | Easy access, bill pay, debit card, medallion signature guarantee services |
Emergency fund | 0–12 months | 50% or $20K, whichever is less, in a High-yield savings (HYSA) or money market deposit account (FDIC/NCUA insured) as the checking account. | Easy access, liquidity |
OK to hold remaining balance in local HYSA, online HYSA, 6 mo CD, brokerage money market, brokerage cash sweep, cash value life insurance | Higher yield with low risk | ||
Planned purchases | 6–24 months | High-yield savings, CD matched to purchase date, or brokerage money market fund; consider tax-exempt money market if in the 32%+ marginal tax bracket | Higher yield with low risk |
| 2–10 Years | CDs, Treasury bills, brokerage money market funds or MYGAs. Consider a tax exempt money market if in the 32%+ marginal tax bracket. | Higher fixed rates for money not needed soon; certainty of need and risk tolerance |
Key Takeaways
Selection of cash vehicles should match time horizon and purpose
Safety and access matter more than yield for short-term needs
FDIC and SIPC protections reduce institutional risk, not interest-rate risk
MYGAs can be attractive for longer-term cash, but have liquidity limits and tax considerations
Using multiple accounts and institutions can improve both access and protection
