Where to park idle cash?


where to invest next, where to park idle cash, savings, emergency fund, cash investment, financial plan, financial planner, cash surplus
Parking lot for idle cash

Interest rates have been at historic lows for over a year now. The old emergency fund isn't providing the 2-3% interest it used to when you opened the Ally/Marcus/Synchrony/Another Online Bank high-yield savings account a few years ago. Most banks are only offering .03-.05% interest on savings accounts. If you're like me, you want to see a better return on idle cash lest the rising inflation erode the value.


Here's a few ideas:

  • CD - interest rates on CDs aren't much better than the savings account and you have to agree to lock the money up for a certain amount of time which defeats the purpose of an emergency fund

  • Money Market - better interest rate than the bank savings account at around .15% but still not great

  • I-Bonds - a government backed security with a mandate to offset inflation but you have to hold them for a year, I don't like being locked in

  • TIPS - Treasury Inflation Protected Security...a government bond (read: stable) whose face value increases with inflation. Sign me up! Of course, there's some risk in investing your savings but very low risk. The fact that the interest must surpass inflation and you can get your money out at any time is very attractive. Current rates are in the range of 1.4-1.6%. Several brokers offer TIPS ETFs. I recommend iShares TIPS or Vanguard TIPS Index Fund.

There are other considerations when you determine how much idle cash you need and this is closely correlated to your personal tolerance of risk. For instance, you could reduce the total size of your emergency fund by closely evaluating your fixed expenses to only keep the bare minimum in cash at any time. Or you could pay down your mortgage to reduce your monthly payment.


My preference is to keep enough cash on hand to sustain you (and maintain your quality of life) for 3-6 months. You may need to keep more cash above and beyond this amount in the event you're looking for a new investment or waiting out the bull market or you expect a hefty tax bill later this year.


But for crying out loud, do Something with the idle cash otherwise, rising inflation will erode the value of your savings.

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