Where should I park some short-term cash?

Clients often ask me where is a good place to invest some cash for the short-term (12 months or less)?  Until recently, there weren’t good answers to that question, with a volatile market and savings and CD rates below 1%.

Now with the current interest rates, there are short-term, less risky options available to sock away cash that you won’t need for a few months.  There are local banks currently offering specials on Certificates of Deposit.  It can pay to shop around to see what the specials are.  Looking online or placing a phone call, you can find local banks paying 3.3% to 4.08% on Certificates varying in duration from 6 months to 18 months.  A CD within an IRA may pay over 5%.

In addition, there are online savings accounts that are paying 3.75% or more. With online savings, there are no restrictions on how long the money is there, although it may take a couple of days to transfer the money. Be aware of monthly fees, only open an account that is FDIC-insured, and choose a reputable company you know.

From the FDIC FAQs: What is deposit insurance?

FDIC deposit insurance protects bank customers in the event that an FDIC-insured depository institution fails. Bank customers don’t need to purchase deposit insurance; it is automatic for any deposit account opened at an FDIC-insured bank.

Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.

Deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default. For example, if a customer had a CD account in her name alone with a principal balance of $195,000 and $3,000 in accrued interest, the full $198,000 would be insured.

While many checking and savings accounts are still only paying 0.1% interest, now is a great time to move idle cash into something paying a higher interest rate. While cash should just be a portion of the overall asset allocation of your investments, you want to be prudent to move it to an account where you can earn a higher interest rate.

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.