Three ways to manage your cash more strategically

Believe it or not, not all cash accounts are created equal. Just like it’s prudent not to put all your money into one stock or asset class, you should consider using multiple cash accounts for your cash.

When it comes to where you put your cash, it’s important to choose the account type that meets your specific financial needs. The more you understand how you use your cash and the types of accounts available, the more strategic you can be when using cash to reach your financial goals. Here’s what you need to know to be more purposeful with where you place your cash.

Your cash can be grouped into three buckets:

1. Transactional cash
2. Savings cash
3. Strategic cash

Transactional cash

Transactional cash is the money you use for everyday expenses and short-term needs, such as bills, groceries, or even more expensive things like new tires or an upcoming vacation.

Because you want this cash to be spendable, it often makes sense to keep it in a checking account. This makes it easily accessible for immediate spending through your debit card, online banking app, and autopay. With this cash, you’ll want to keep enough in there to cover your expenses, along with a buffer.

Savings cash

Savings cash is the money that you set aside in case of an emergency or plan to spend at some point on things like:

• a major purchase
• building up a down payment
• paying for a life event (e.g., wedding)

Placing this cash in a savings account  - especially a high-yield savings account - can help generate a more competitive yield until you are ready to transfer it to a checking account and spend it. For some people, separating some of their cash into a savings account helps them spend less by making that cash “out of sight, out of mind.”

Strategic cash

Strategic cash can be used as part of your overall investment strategy to help you reduce portfolio risk, keep funds available for other investments, and generate a competitive return.

Strategic cash is commonly placed in one of two vehicles:

• Certificate of Deposit (CD): CDs offer a fixed interest rate, generating a guaranteed return over a set period of time. Interest rates are typically higher than a savings account as you can’t access your cash until the CD matures. Nevertheless, you can still withdraw your cash by incurring a penalty.
• Money Market Fund (MMF): A MMF is a type of mutual fund that invests in short-term, highly quality investments with the goal of generating a higher return than a traditional savings account. Unlike a CD, you can take money in and out of a MMF, but keep in mind that a MMF generates a variable interest rate based on the performance of its underlying investments.

By understanding the purpose of each dollar – spending, saving, or investing – you can use your cash as an asset to balance short-term needs with your long-term goals while maintaining your financial flexibility.

Review your cash holdings, along with your goals, to make sure your cash is where you want it to be.

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