Holding onto cash reserves beyond a limit is criminal. It is such a waste of time value of money that I cannot help it but call it criminal. The objective for holding cash is something that should be clearly defined and put in black and white on your financial planner. The point up to which the cash shall be held and the amount of reserves must also be pre decided and planned for better financial control.
There would be times when you might be have sudden unexpected cash inflows and you might start wondering what to do with it except for stuffing it into your cash coffers.
Here’s a list of probable financial avenues where you can stash your cash for different periods of time with lower degrees of financial risk:
Traditional Saving account
You can drive to you local bank and put up your cash in their safe custody (your savings account with the bank). Such saving accounts carry a negligible risk and the rate of interest that you would earn out of them would also be low.
But be sure to check if they are above the inflation rate so that your money grows effectively. The real rate must be high. Some sites like the dailybanker.com can help you out in such matters. The cash can be parked for as long as you want. There are no minimum or maximum numbers of days.
Certificate of Deposit
Another financial instrument for parking your money temporarily is the by a commercial bank. It comes with a pre decided lock in period and cash cannot be withdrawn or availed till the maturity of the instrument. A certificate of deposit carries a maturity date and a fixed rate of interest. It can be issued in any denominations – however the minimum benchmark is around $5000 for most of the banks.
The greater is the principal amount, the higher would be the interest rate. The same logic is for the time period. The greater the time period the higher is the interest rate. This is because of the risk-return relationship. The certificate of deposits is generally insured by the Federal finance agencies.
Money market instruments
The rates of interest are lower than that of savings account or the certificate of deposits. The deposits into the money market accounts are invested into treasury bills, certificates of deposit and other safe and secured financial instruments. The money market account at dailybanker.com operates similarly to that of a mutual fund where funds can be parked and withdrawn at will. However many of the financial institutions have some kind of limitation with respect to withdrawal of funds from the money marker accounts; like limiting the number of transactions per month or having a cap on the percentile withdrawal per week or a combination of both or some other techniques.