Cash Isn’t Trash (But Yours Might Be)

Back in 2020, billionaire investor Ray Dalio famously claimed that “cash is trash”, elaborating that at that time cash wasn’t safe because it would be “taxed by inflation” at current yields. Now here we are, 4 years later and the Federal Reserve has implemented significant interest rate hikes to cool inflation. Bad news for borrowers, but good news for savvy savers who are maximizing the yields they are getting on their cash reserves.

Understanding High Interest Rates

First off, let’s talk about what higher interest rates mean. When rates are high, banks and other places that hold your money give you more back in interest. That’s a win for you because it means your savings can grow faster! Alternatively, when you want to swipe your credit card, finance that new car purchase or buy a home, you need to pay more in interest in order to borrow money.

Where to Put Your Cash

With higher interest rates, you want to be more intentional with the cash you have on hand. Here are some places you might want to think about putting your cash reserves:

1. High-Interest Savings Accounts: Look for savings accounts that pay more interest than usual. These accounts can help your money grow faster while still keeping it safe. Don’t be afraid to look at community banks, online banks and other financial institutions. Nerdwallet.com has a great list.
2. Certificates of Deposit (CDs): CDs are great because you agree to leave your money with a financial institution for a set time, such as six months or a year. In return, you get a higher interest rate. Just remember, you usually can’t take your money out early without a penalty.
3. Money Market Accounts or Funds: These are a bit like savings accounts, but they often pay higher interest rates. They’re good if you want to earn more interest but still have quick access to your money. Don’t be fooled by the term “Money Market”, double check the yield to confirm the rate you are receiving is competitive.
4. Short-Term Bonds: Bonds are kind of like loans you give to companies or the government. Short-term bonds can give you more interest than regular savings accounts. They’re a bit more risky because the value can fluctuate with changes in interest rates, but they can be worth it if you’re okay with exchanging a bit of risk for higher return.

Things to Keep in Mind

Here are a few important things to remember:

• Safety First: Always make sure your money is in a safe place, like a bank or credit union that’s insured by the FDIC or NCUA, or a brokerage account insured under SIPC. That way, even if something happens to the institution, your money is protected up to a certain limit.
• Time Horizon: Think about how soon you might need your money. If it’s for a short-term goal, like buying a new phone soon, you might want an account where you can get your money fast. If it’s for something far off, like college in a few years, a CD or bonds might be the right fit because they can earn more interest over time.
• Shop Around: Different banks, credit unions, brokerage firms and other institutions offer different interest rates. It’s smart to compare a few places to see where you can get the most bang for your buck.

Managing your cash reserves when interest rates are high is all about finding the right balance between safety, growth, and liquidity. Spend a few valuable minutes today to review your statements or go online to find the current yield on your cash reserves and I’ll bet you can identify ways to ensure your cash isn’t trash.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.