Cash is an important piece of any investment portfolio. Keeping some of your assets as cash is helpful for short-term needs. For example, if you need money for an emergency, having cash on hand means you can avoid having to sell investments at a loss.
Doing more with your cash
The risk of holding cash is that over time, inflation can erode your money’s buying power. For that reason, most investors use at least some of the following products to ensure their cash earns as high a return as possible:
- Savings accounts
By keeping your money in a savings account, rather than a current account, you can earn a small amount of interest without tying up your money.
- Term deposits
These offer a higher interest rate, but you have to agree to leave your money in for fixed number of months or years. There is a penalty for taking out money early.
- Money market funds
These funds aim to earn a better return than the typical interest rates offered by banks. They do this by using a combination of cash instruments, such as deposits, term deposits, and short-term interest-earning securities. They can earn you a better rate, but returns are not guaranteed and there is a chance you may be asked to defer withdrawals. Unlike savings and deposits, you might get back less than you initially invested.