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How to Invest Cash for the Short-Term


Finding a place to stash cash in today’s environment is tricky.  Whether it be for an emergency account, a large purchase in the near future, or just part of your asset allocation, follow these guidelines to ensure your cash is providing you with all it should.

            -  Safety – When investing cash, safety is paramount.  FDIC insurance provides a solid guarantee that your money will be there when you need it.  Make sure, above all else, that your money has a very high degree of safety.  The security of your cash has a tremendous value.

            -  Accessibility – The second most 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 once the money is safe and accessible.  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 Bankrate.com.  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 have fees if the balance falls below a certain level.  CD’s will charge you 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 CD’s, or Treasury bills.  When deciding just remember that interest rate alone is not your primary concern.  Safety and accessibility have a tremendous value and should be an important part of the decision making process.

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