What’s next for your cash?

One of the silver linings of higher interest rates over the past couple of years has been higher yields on cash investments. High-yield savings accounts have provided their most attractive interest rates (yields) in almost two decades, with some above 5%, with certificate of deposits and money market funds also paying historically high rates.

A year ago, it seemed likely that interest rates would go back down and with them, cash returns would look less fruitful once again. While the Federal Reserve has cut rates a few times, the future of interest rates now looks much less certain.

If you have cash to invest, where should you put it? With the economic picture looking cloudier, should you build up your emergency savings? How should you handle your cash in the event of a job loss or other crisis?

These are all important questions that deserve careful thought.

Your cash is intended to fulfill a variety of functions, from daily activities to a purchase a year or two from now and the unexpected emergencies in between. The answer to where you should put your cash needs to be broader than just the yield you can get – the rules of that cash account or vehicle need to align with the needs you have for your cash to begin with.

Different life stages, different cash needs

With the cash landscape potentially changing, it’s a good time to take a step back and consider how much cash you really need in the first place. As we’ve mentioned, your level of cash reserves will depend on a variety of factors – including personal risk tolerance – and should be considered in context of your overall financial plan.

However, our general guidelines are:

• If you’re in your working years, you should consider having cash reserves that cover six to 12 months of living expenses in case of job loss or unexpected emergencies.
• If you’re retired or self-employed with variable income, consider having cash reserves that cover 12 to 24 months, based on monthly portfolio withdrawals and fixed income sources used for living expenses.

We suggest larger cash reserves for retirees as your savings are no longer being replenished by steady employment. But, again, these are general guidelines.

SHOULD YOU RAMP UP YOUR EMERGENCY FUND?

If you’re still working and your emergency fund is on the smaller side (6 months), and you are concerned your job might be at risk given the current environment, you may want to increase your cash reserves amount closer to 12 months. This is especially true if you’re the sole earner in your household, and/or if the bulk of your expenses are nondiscretionary (housing, food and medical, for example) and would be difficult to cut.

There are alternative solutions to potentially needing large amounts of liquidity in an emergency, however. We’ll discuss them below.

Excess cash? Invest it.

But, if you have been squirreling cash into CDs or money market funds to take advantage of higher yields, it may be worth asking if it’s resulted in having “excess cash” that you won’t need over the next 24 months. Or have you been hoarding your cash in soon-to-be maturing CDs or other cash instruments after feeling burned by the 2022 bear market?

Consult first with your financial advisor as to what would define excess cash for you, but if you have it, that cash could be better placed in a diversified investment portfolio.

Historically, returns of a diversified investment portfolio have outpaced the returns of cash vehicles over time.¹

As of mid-2025, stock prices have come down from their previous all-time highs. If that continues, it could make this a great time to invest cash in the market.

Placing large sums of money into a volatile or down market can make some investors nervous. If that’s the case for you, dollar-cost averaging can be a good way to ease your way in but potentially still get the benefits of buying in at lower prices.

GOOD OPTIONS FOR YOUR CASH

You don’t want to put money that you might need soon into longer-term investments, however. So, let’s revisit where you’re holding that 6-24 months of cash.

If the Fed does cut interest rates, yields on cash instruments would likely drop. If rates go up, then yields probably will too. But the bottom line is that where to place your cash – and how much cash to have – isn’t just about the yield.

You should definitely look to earn a higher yield than you’d get on traditional checking and savings accounts. There’s a range of options.

READYCASH^®

• An easy-to-access UMB Bank high yield savings account option offered through Edelman Financial Engines²
• Yields fluctuate, so if rates fall your yield is likely to go down
• Eligible for aggregate FDIC coverage up to $2,000,000
• No minimum balance or transaction fees

Bank Money Market Accounts

• Access cash anytime, including by check or debit card, though withdrawal limits may apply
• Yields fluctuate, so if rates fall, your yield is likely to go down
• FDIC insured up to $250,000 per account
• Minimum deposits vary by institution, but higher balances may garner better yields
• May have minimum balance requirements

Bank High-Yield Savings Accounts

• Withdraw money anytime and link the account to a checking account, though accounts may limit the number of withdrawals
• Yields fluctuate, so if rates fall, your yield is likely to go down
• FDIC insured up to $250,000 per account
• May have de minimis balance requirements

Brokerage Money Market Funds

• May be able to withdraw money anytime, without penalty
• Interest rates may fluctuate daily (unlike CDs), so if rates fall, your yield is likely to go down
• Not insured by FDIC, but if in a brokerage account, SIPC may offer up to $500,000 of account protection
• Investment minimums vary

For cash you won’t need for 13 months to 24 months, you may consider an additional option:

BANK OR BROKERAGE CDS

• May be subject to penalty or lose money if you withdraw before CD matures – stick to shorter maturities for your emergency cash
• Yield is locked in for full CD term and may be higher than you can get with other options
• If held at a bank, FDIC insured up to $250,000 per account
• Minimum investment varies

WHERE NOT TO KEEP YOUR CASH

Don’t put your cash anywhere that would cause you to lose access to your money for an extended period, or where there are fees and penalties to access it. These include CDs with terms of longer than 12 months, U.S. Treasury notes and bonds and Treasury Inflation-Protected Securities. Life insurance cash values and fixed annuities are not suitable for use as reserves either, because of potentially large surrender penalties, tax risks and other restrictions.

You also should not plan on withdrawing from a cash position in your managed portfolio if doing so would trigger the need to rebalance the portfolio.

ALTERNATIVE SOURCES OF CASH

If you find yourself in the position of needing more of an emergency reserve than you have available, what should you do?

If you’re a homeowner, there are several ways you can access the equity in your house, which is likely to be a better option than high-interest credit card debt or other loans.

HOME EQUITY LOAN

You can take a loan for an amount typically up to 80% of your home’s value (minus anything you still owe on a first mortgage). Home equity loan rates are generally higher than mortgage rates, and they often have loan origination fees and closing costs. The interest rate is usually fixed for the life of the loan. Because of the lower interest rate (compared with credit cards) and long repayment period (up to 30 years), payments can be manageable even if you borrow a large amount. Remember that your home is collateral for the loan.

HELOC

A home equity line of credit lets you tap your home equity as you need it, instead of one lump sum. It also involves fees, and your house is collateral for whatever amount you borrow. On the positive side, you won’t need to borrow and pay interest on more than you might potentially end up needing. On the downside, the interest rate will typically fluctuate, so you may end up paying more if rates go up.

AVOID: HOME EQUITY CONTRACT

Also called home equity investments or home equity agreements, these contracts give you a lump sum now in exchange for a large repayment in the future (either a fixed number of years or when you sell) that is based in part on your home’s future value. The contracts often are highly unfavorable to the borrower and ensure the lender will receive a significantly larger repayment than the borrowed amount. Interest rates are typically high, as well. We generally don’t recommend home equity contracts.

WE’RE HERE TO HELP

There are a number of options to balance your liquidity needs with income from your cash amid the prospect of lower rates. As you evaluate your cash position, talk with an advisor about which options may work best within your financial plan.

¹ Based on 60/40 blended benchmark returns relative to cash for rolling 12-month periods from 1926-2024. “Cash” returns use IA SBBI US 30-Day T-Bill Infl Adj TR USD Index. 60/40 blended benchmark uses index proxies, as follows: 40% IA SBBI US Intermediate-Term Govt Bond Infl Adj TR USD, 50% IA SBBI US Large Stock Infl Adj TR USD, 10% IA SBBI US Small Stock Infl Adj TR USD. Index returns are provided as a benchmark and are not illustrative of any particular investment. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not a guarantee of future results. 

² Ready Cash® is offered through Edelman Financial Engines (Edelman), which is not a bank. Participants in the program must open an account at UMB Bank, n.a., Member FDIC, through which your funds will be placed in accounts at participating program banks. The Annual Percentage Yield (APY) for the Cash Account is as of a specific date, and may change at any time. The advertised interest rates are paid by participating program banks, not by UMB. Interest rates are not guaranteed. The cash balance you place through Ready Cash is placed by UMB Bank at participating program banks, and each program bank pays interest at an agreed-upon rate on the funds placed with it by UMB Bank through the program. Your funds will be FDIC insured up to applicable limits while in transit through UMB Bank. Edelman receives a fee from each Program Bank in connection with the Program that is based on the aggregate daily closing balance of deposits held in Program Accounts by such Program Bank. The fee may vary from Program Bank to Program Bank and will generally increase as the aggregate amount of funds held in Program Accounts with the Program Bank increases.