Our Latest Insights

By Carlos Ferreira on February 6, 2024

With Interest rates as high as they have been since 2007, cash has become a very exciting option once again. With that excitement, we must ask ourselves two core questions. First, how much cash should I have in my bank account?  Once we answer that, we can move on to the second question.  What should I do with the cash I don’t need right now but don’t want invested and exposed to loss? There is no correct answer that works for everyone, but there are some helpful ways to think this through.  Below are our thoughts on the subject.

How much cash should I have in my bank account?

It’s always a great exercise to sit down and figure out what your monthly cash needs are.  This is a combination of your fixed expenses and variable expenses.  For working couples with two incomes, we typically advise these clients to have at least 3 months of cash in their accounts to cover basic expenses.  For single-income clients, 6 months of cash needs is more prudent.  For our retired clients, 6-18 months of cash needs is recommended, but as stated before, there is no one-size-fits-all answer.  Find what works for you and your situation.

What are your Options?

Once you have decided upon a comfortable amount of cash in your bank account to cover regular expenses and emergencies, what should you do with the rest?

Checking/ Saving Accounts

Plain vanilla bank checking and savings accounts are often where people feel comfortable holding their cash.  It is simple and easy, but is it the best option?  Per Bankrate.com, the average savings account is paying 0.62% APY as of January 7^th, 2024, and most checking accounts are paying 0.00%.  This is a far cry from the 5.25% target interest rate set by the Federal Reserve.    

Bank Certificates of Deposit (CDs)

CDs can be a solid option.  They offer competitive interest rates and can be FDIC insured up to $250,000.  CDs also come in a wide range of maturities, so they can be tailored to each person’s needs.  Unlike other cash options, CDs are usually less liquid, and you may incur a penalty if sold prior to maturity.

Treasury Bills (T-Bills)

Treasury bills are backed by the full faith and credit of the US Government.  Unlike FDIC insurance coverage, which offers a government guarantee up to the FDIC limit, T-Bills provide a 100% government guarantee.  T-Bills can be purchased with maturities ranging from 4 to 52 weeks.  T-Bills are very liquid and large amounts can be sold quickly, but you could incur a loss if a bill were sold prior to its maturity date.    

Money Market Funds

Money Market Funds are mutual funds that invest in short-term assets such as CDs, Treasury bills, repurchase agreements, etc. They aim to keep a stable value of $1.00 per share.  Money Market Funds come in a few different forms: Government Money Market Funds, Prime Money Market Funds, and Municipal Money Market Funds.  Each has a slightly different yield and tax treatment. Money Market Funds trade daily, so if a cash need were to arise, cash can be freed up and sent to you within 1-2 business days. 

All Advisors at Lexington Wealth Management are knowledgeable in these cash management options and are open to a conversation to determine which may be best for you and your situation.  If any of the above interests you or if you have any questions, please feel free to contact your advisor at Lexington Wealth Management, and they will be happy to discuss further.

By Carlos Ferreira
Associate Wealth Advisor
Email: carlos.ferreira@lexingtonwealth.com

 Lexington Wealth Management is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. Lexington Wealth Management and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. Lexington Wealth Management and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Lexington Wealth Management and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Lexington Wealth Management and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented