Key takeaways 

• Recent banking concerns are causing consumers to question their cash holdings, but maintaining a diversified portfolio includes your approach to cash. 
• Why? Cash amounts to nearly 28% (or $66,000) of the average Empower Personal Dashboard™ user’s portfolio.* 
• Here’s why you may want to consider a high-yield cash account that offers no minimums or fees, flexible transfers options, and higher returns on your cash savings. 

This month’s bank collapses have left many consumers confused. More people than ever are considering pulling their money out of banks,¹ uncertain if their hard-earned dollars are safe. 
 
However, cash can play an important role in a diversified portfolio. It provides easy access for your emergency fund and short-term financial goals, like buying a new car or making a home down payment within the next couple of years. 
 
If you have a long-term investment strategy, then you understand the importance of making your money work for you and, along the way, ensuring it's safeguarded with ample FDIC coverage. 

How much cash should you keep in the bank? 

Cash amounts to almost 28%* of the average portfolio of Empower Personal Dashboard™ users. In dollars, that’s nearly $66,000 per person* – no small chunk of change. 

Anonymized user data from the Empower Personal Dashboard™ as of 03/23. 

Like many people, you may default to leaving extra funds in your traditional checking or savings account. Reasons vary. Maybe you haven’t decided how to allocate it to investment accounts. Perhaps you’re stowing away extra money for a rainy day. Or you could be building up savings for a short-term goal like funding a vacation or new car. All of these – particularly the latter two – are valid reasons to keep cash working for you. 

5 account types for your short-term savings

Here are some options for your earnings that you want to keep accessible. 

1. High-yield cash accounts

Typically, these accounts are associated with online institutions. With these accounts, your money can earn more money while it’s parked there. High-yield accounts provide several advantages beyond higher yields on your money.                                          

The advantages of high-yield accounts include: 

1. FDIC insurance, just like your traditional bank 

2. High liquidity (some have withdrawal restrictions, but they aren’t generally overly restrictive) 

3. Convenience features, i.e. your money is readily available on a user-friendly platform 

4. No fees or minimums – you keep the money you earn 

2. Money market accounts

This option is very similar to a high-yield account, including FDIC insurance. At many financial institutions, the differences between a money market account and a savings account are negligible. However, money market accounts are more likely to restrict the number of withdrawals per month, so you may want to explore those restrictions before choosing between the two options.                                                               

3. Certificates of deposit (CDs)

While CDs are designed for short-term investors, they do carry withdrawal restrictions based on the length of CD you purchase. For example, a three-month CD will tie up your funds for a few months, while a five-year CD means you can’t touch the money for – you guessed it – five years. The longer the time period, generally the higher the yield. However, CDs work best only if you know your funds will not be needed during that period. If you need the money sooner, you’ll generally pay early withdrawal penalties, which can take a big bite out of your overall return.                    

4. Short-term bond funds 

These mutual funds invest in short-term bonds, both corporate and U.S. government bonds. These funds are less risky than their equity market-equals, although there is some inflation risk. The advantage of a bond fund versus a CD is flexibility. You can withdraw money from a short-term bond fund without penalties, so your money is not tied up for a specific period.       

However, you will pay fund fees, which can eat into your return. Be sure to review the expense ratios of any short-term bond fund before you invest.                                      

5. Money market funds

Unlike money market accounts, money market funds are mutual funds that invest in short-term U.S. government and corporate debt. They are not FDIC insured. And, theoretically, prices for these funds can fluctuate, but they nearly always maintain a stable price, so they are considered a safe investment for short-term money. While your money is readily available, these funds are not generally the savings vehicle of choice for consumers who want to regularly access their cash.                                                 

How much return can you expect?

Of course, return varies based on the short-term instrument you select, as well as the environment in which you’re shopping around. Rates are variable.                                   

A great way to determine which vehicle is best for you is to consider these questions: 

1. How much access do I need to my money? 

2. How much do I need or want in FDIC insurance? 

There is a possibility of greater return from options like CDs or short-term bond funds, but it’s also important to consider the restrictions that will be placed on your money and the lack of FDIC insurance. 

If you want flexible access to your money and the extra protection of FDIC insurance, consider starting with a high-yield or money market account. For most investors with extra money sitting in a traditional checking or savings account, these are some of the best options. These accounts tend to offer higher returns than traditional savings accounts, have few restrictions, are easy to open, and are FDIC insured.