Liquid Cash Investment: Where To Place Your Money Wisely

There are many options for investing liquid cash, each with its own benefits and drawbacks. Some of the most popular options include high-yield savings accounts, money market accounts, treasury bills, and government bonds. These options offer high liquidity and low risk, making them ideal for investors seeking to preserve capital or earn medium returns over a short period.

For those seeking higher returns, equity mutual funds offer the potential for significant long-term gains, especially if the market performs well. However, they come with higher risks compared to other investment options.

Other options include fixed deposits, which offer guaranteed returns but may not provide exciting returns, and commercial paper, which is a short-term debt instrument issued by large companies.

When deciding where to invest liquid cash, it is essential to consider factors such as access, interest rates, service, and penalties.

High-yield savings accounts

How They Work

Features and Limitations

Choosing the Right Account

When shopping for a high-yield savings account, it is essential to compare various options and consider different factors. Look for accounts with competitive interest rates and avoid those with introductory promotional rates that may change after a certain period. Also, pay attention to the initial deposit and minimum balance requirements, as well as any associated fees. Some accounts may have minimum or maximum balance thresholds to earn the promoted interest rate. Additionally, consider the accessibility of your funds and whether the account offers links to other banks or brokerage accounts.

Examples of High-Yield Savings Accounts

Several banks offer high-yield savings accounts, and it is important to compare their features and rates before choosing one. Here are some examples:

• Barclays Tiered Savings Account
• SoFi Checking and Savings
• CIT Bank Platinum Savings
• Openbank High Yield Savings
• UFB Portfolio Savings
• American Express High Yield Savings Account
• Capital One 360 Performance Savings
• EverBank Performance Savings

By choosing a high-yield savings account, you can take advantage of higher interest rates and boost your savings more quickly. Remember to consider your financial goals and compare the features and limitations of different accounts before making a decision.

Money market accounts

However, there are downsides to consider with this type of account. Money market accounts may come with minimum balance requirements, withdrawal limits, and fees and other charges. These factors could reduce the liquidity of the account. Additionally, the potential for greater returns may be found in other assets such as stocks and bonds, though these are considered less liquid and are often riskier.

When deciding where to invest liquid cash, it is important to consider access, interest, service, and penalties. Money market accounts offer a balance of these factors, providing a place to keep your money that is both accessible and earns interest, with the added benefit of being FDIC-insured.

Treasury bills

T-bills are sold at a discount from their face value and mature at face value. The difference between the purchase price and the maturity value is the interest earned by the investor. For example, if you buy a $1,000 T-bill for $954.19, you will earn $45.80 in interest when the T-bill matures. T-bills don't offer regular interest payments, but the interest is built into the amount paid at maturity. While T-bills offer a stable income, they provide low returns compared to other debt instruments.

T-bill rates depend on interest rate expectations. When interest rates are expected to rise, longer maturity dates pay more than shorter dates. On the other hand, if interest rates are expected to fall, longer maturity dates might offer lower interest rates. T-bill prices tend to rise when the US Federal Reserve engages in an expansionary monetary policy and fall when the Fed sells its debt securities.

T-bills are suitable for investors looking for a safe and secure investment with a short-term maturity. They are a good option for those who want to tie up their cash for a month or two, as maturities can range from a few days to 52 weeks. T-bills can be purchased directly from the government at TreasuryDirect.gov or through a financial advisor or bank broker. There are no fees for purchasing T-bills, and only small commissions.

Government bonds

In the US, government-issued bonds are known as Treasuries, while in the UK they are called gilts. Government bonds from established and stable economies are regarded as comparatively low-risk investments.

When you buy a government bond, you lend the government an agreed amount of money for an agreed period of time. In return, the government will pay you back a set level of interest at regular periods, known as the coupon. This makes bonds a fixed-income asset.

Once the bond expires, your original investment amount – called the principal – will be returned to you. The day on which you receive the principal is called the maturity date. Different bonds will come with different maturity dates – they can mature in less than a year, or in 30 years or more.

Treasury bills (or T-bills) are short-term securities from four weeks to 52 weeks. Bills are sold at a discount or face value. When the bill matures, investors are paid its face value. Treasury notes (or T-notes) are intermediate-term bonds maturing in two, three, five, or ten years that provide fixed coupon returns. Treasury bonds (or T-bonds) are long-term bonds with a maturity between 20 to 30 years. They give interest or coupon payments semi-annually and have a minimum investment of $100.

Commercial paper

The minimum denomination of commercial paper is $100,000, which means that it is usually bought by institutional investors rather than individuals. These include money market funds, corporate treasurers, pension funds, insurance companies, and banks. Wealthy individuals may also invest in commercial paper through private placements.

Overall, commercial paper is a short-term investment option that provides a low-risk way for companies to raise funds and for investors to generate returns.

Frequently asked questions