How to Invest Cash Wisely for the Short-Term - dummies

How to Invest Cash Wisely for the Short-Term

By Ryan P. Zacharczyk, CFP®, MBA CRPC

Finding a place to stash cash in today’s economic environment is tricky. Whether you’re setting money aside in an emergency account, saving for a large purchase in the near future, or investing as part of your asset allocation, you can ensure your cash is providing you with all it should by following these guidelines.

  • Safety — When investing cash, safety is paramount. Perhaps the best chance for safety of principle is the FDIC insurance provided by your local bank. FDIC insurance provides a solid guarantee that your money will be there when you need it. Although the Federal Deposit Insurance Corporation coverage is not the only means of safety for your deposit, the government’s independent agency provides the simplest and, possibly, the highest degree of safety available today. The security of your cash has tremendous value.

  • Accessibility — The second important aspect of investing cash is your ability to access it. Most money market accounts and even savings accounts give you the ability to access your cash with 24 hours. Make sure that your cash is at least accessible within 48–72 hours, if you were to need it.

  • Interest rate — Obviously, earning the most money on your cash is important, but not at the expense of safety and liquidity. Shop for banks or investment companies that offer you the highest interest rate on a safe and accessible investment.

    The current return on short-term cash is almost nothing. Most savings accounts are paying less than half a percent. However, a little research can go a long way. Do your homework. Look for rate comparison sites like They will give you the best interest rates available.

  • Penalties — Read the fine print on any account you open. Make sure that you understand all penalties involved. Some savings accounts assess fees if the balance falls below a certain level. Certificates of Deposits carry charges if you withdraw the money before it matures. Understand the penalties so you do not end up being blindsided.

  • Options — There are many options for your short-term cash savings. The choice depends on you and your objectives. When looking to store cash, consider a checking account, saving account, money market account, money market fund, short-term CDs, or Treasury bills.

When deciding on the right investment option for your personal finance situation, keep in mind that interest rate alone is not your primary concern. Safety and accessibility have tremendous value and should be an important part of the decision-making process.