Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money.
The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal. Bankrate logo
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
The Cash Conundrum: Finding the Perfect Parking Spot for Your Money
Let’s face it – not all your money should be invested all the time. Whether you’re saving for a rainy day waiting for the right investment opportunity or just need cash for everyday expenses, knowing where to park your uninvested cash is crucial. I’ve spent years navigating this question myself, and trust me, there’s no one-size-fits-all answer.
As someone who’s watched interest rates bounce around like a ping pong ball over the years, I can tell you that choosing the right place for your cash depends on your personal situation and how you plan to use those funds. Let’s dive into the smart options for keeping your cash when it’s not being invested.
Why You Should Keep Some Cash Outside Your Investments
Before we jump into where to hold your cash, let’s talk about WHY having uninvested cash matters:
- Emergency preparedness – Life throws curveballs, and having readily available funds prevents selling investments at potentially bad times
- Opportunity fund – When market opportunities arise, having cash ready means you can act quickly
- Peace of mind – There’s something deeply comforting about knowing you have liquid assets available
- Everyday expenses – You need money for daily living that’s easily accessible
In my experience, having some cash on hand is like having insurance for your financial life. It’s not glamorous, but you’ll be darn glad it’s there when you need it!
Cash Options Inside Your Investment Portfolio
Schwab financial experts believe cash can be a key component of a diversified investment portfolio. It reduces risk, provides stability, and can generate yield while waiting for its intended purpose Here are your main options
1. Money Market Funds
Money market funds are my personal favorite for cash within investment accounts. They’re mutual funds designed to maintain stable capital while remaining liquid. They primarily invest in high-quality short-term debt securities.
Pros:
- Higher yields than typical savings accounts
- Next-day access to your money (sell by 4pm ET for access the following day)
- Aims to maintain stable value ($1.00 per share)
- Protected by SIPC against brokerage failure
Cons:
- Yields fluctuate with market conditions
- Not all money market funds have the same risk profile
- Not FDIC insured like bank products
I keep a chunk of my portfolio cash in money market funds because they offer that sweet spot of decent yields with good liquidity. Just remember to check what credit risks your chosen fund takes!
2. Certificates of Deposit (CDs)
CDs are time deposits offered by banks that lock your money away for a set period in exchange for a fixed rate of return.
Pros:
- Generally higher yields than savings accounts
- FDIC insured up to $250,000
- Fixed, predictable returns
- Various term options (usually 3 months to 5 years)
Cons:
- Early withdrawal penalties can be steep
- Money is locked away until maturity
- May underperform during rising interest rate environments
I use CDs when I know I won’t need certain funds for a while but don’t want to risk them in the market. They’re perfect for goals with specific timelines, like saving for a down payment on a house that’s 2-3 years away.
Cash Options Outside Your Investment Portfolio
For your everyday cash needs, you need solutions that prioritize accessibility over yield:
1. Checking Accounts
The workhorse of everyday finances, checking accounts are designed for frequent transactions.
Pros:
- Immediate access to funds
- Check-writing capabilities
- ATM access
- FDIC insured up to $250,000
- Often comes with debit cards and online bill pay
Cons:
- Typically pays little to no interest
- May have monthly fees
- May have minimum balance requirements
I keep about 1-2 months of expenses in my checking account – enough to pay bills without constantly transferring money, but not so much that I’m losing out on potential growth elsewhere.
2. Savings Accounts
A step up from checking in terms of yield, savings accounts are great for emergency funds and short-term goals.
Pros:
- Better interest rates than checking accounts
- FDIC insured up to $250,000
- Immediate access to your money
- Separates your savings from everyday spending
Cons:
- Lower yields than investment options
- May have monthly withdrawal limits
- Some banks impose minimum balance requirements
My emergency fund sits in a high-yield online savings account. It gives me the perfect balance of accessibility and a decent return compared to traditional brick-and-mortar banks.
3. Brokerage Account Cash
Many people overlook this option, but the uninvested cash in your brokerage account can be a strategic holding place.
Pros:
- Easily available for investment opportunities
- Can earn interest while waiting to be invested
- SIPC protected up to $500,000 per investor (including $250,000 in cash)
- Convenient for managing expenses related to investments
Cons:
- Interest rates may be lower than dedicated cash options
- Not designed primarily as a cash management solution
- May tempt you into impulsive investing
I personally keep a small “opportunity fund” as cash in my brokerage account so I can quickly pounce on investment opportunities without having to transfer money first.
How to Make Your Decision: A Personal Approach
When deciding where to park your uninvested cash, I always consider these three factors:
- Accessibility needs: How quickly might you need the money?
- Insurance protection: Is FDIC or SIPC protection important to you?
- Yield potential: What return can you reasonably expect?
Here’s a simple decision matrix I’ve created to help make this decision:
| Need Access Within | Best Options | Why It Works |
|---|---|---|
| 1 day | Checking account, Savings account | Immediate availability |
| 2-7 days | Money market funds, Brokerage cash | Good balance of yield and accessibility |
| 30+ days | High-yield savings, Money market funds | Better yields with reasonable access |
| 3+ months | CDs, Treasury bonds | Highest yields for cash alternatives |
My Personal Cash Management Strategy
I’ve developed a tiered approach to managing my uninvested cash that works well for me:
- Tier 1 (Immediate needs): Checking account with 1-2 months of expenses
- Tier 2 (Emergency fund): High-yield savings account with 3-6 months of expenses
- Tier 3 (Investment opportunity fund): Money market funds within my brokerage account
- Tier 4 (Known upcoming expenses): CDs with maturity dates aligned to when I’ll need the funds
This system gives me peace of mind knowing I have the right amount of cash in the right places for different purposes.
Common Mistakes to Avoid With Your Cash
Through trial and error (mostly error!), I’ve learned these lessons the hard way:
- Keeping too much in checking: Many people keep way too much money in non-interest bearing checking accounts.
- Chasing yields blindly: Higher returns always come with higher risk – understand what you’re getting into.
- Ignoring inflation: Cash losing purchasing power is a real risk; sometimes being too conservative costs you.
- Not reviewing regularly: Interest rates and personal needs change – what worked last year might not be optimal today.
When to Reevaluate Your Cash Strategy
Your cash management approach isn’t a set-it-and-forget-it thing. You should reconsider where you’re holding cash when:
- Interest rates change significantly
- Your financial goals shift
- Your time horizon for needing the money changes
- Your risk tolerance evolves
- You experience major life changes (new job, marriage, children)
I review my cash strategy quarterly, and it’s helped me optimize returns while maintaining the liquidity I need.
The Bottom Line: Balance is Key
There’s no perfect answer to where you should keep your uninvested cash. It’s all about balancing accessibility, safety, and returns based on your unique situation.
For most people, a mix of solutions works best – some cash for immediate needs in checking, emergency funds in savings, and longer-term cash in higher-yielding options like money market funds or CDs.
Remember that cash isn’t just money waiting to be invested – it’s a critical part of your overall financial strategy that deserves thoughtful consideration.
When in doubt, talk to a financial advisor who can help you optimize your cash strategy based on your specific goals and circumstances. But don’t overthink it too much – the perfect can be the enemy of the good when it comes to managing your money!
What’s your current strategy for uninvested cash? I’d love to hear what’s working for you in the comments below!
FAQ: Common Questions About Holding Uninvested Cash
Q: How much cash should I keep uninvested?
A: Financial advisors typically recommend keeping 3-6 months of expenses in emergency savings, plus any funds you’ll need for major purchases in the next 1-3 years.
Q: Are money market funds safe?
A: While money market funds aim to maintain a stable $1.00 value per share, they aren’t FDIC insured. However, they’re generally considered low-risk and are protected by SIPC against brokerage failure.
Q: What’s the difference between FDIC and SIPC insurance?
A: FDIC insures bank deposits against bank failure, while SIPC protects against brokerage failure (not market losses). FDIC covers up to $250,000 per depositor per bank, while SIPC covers up to $500,000 per investor (including up to $250,000 in cash).
Q: Should I keep all my emergency fund in a savings account?
A: Not necessarily. You might consider a tiered approach with some in savings for immediate access and some in higher-yielding options like money market funds for better returns.
Q: How often should I review where I’m holding my cash?
A: At minimum, review annually or whenever interest rates change significantly. I personally do a quick review quarterly to make sure I’m optimizing my returns.
Can you earn interest from uninvested cash in your brokerage account?
Some brokers pay interest on uninvested customer funds, but not all. Those that do tend to offer negligible rates of return, often less than 0.2 percent, at a time when the federal funds rate — or the rate at which banks lend money to each other — is still well above 4 percent.
For example, E-Trade offers just 0.01 percent APY on brokerage accounts with less than $500,000 in cash. J.P. Morgan brokerage accounts earn the same 0.01 percent through its deposit sweep program, regardless of balance size. Even Charles Schwab, which earned its spot on Bankrate’s list of best brokers, offers just 0.2 percent APY on uninvested cash in brokerage accounts.
This wasn’t an issue a few years ago, when the federal funds rate was near zero. But when the Federal Reserve began hiking interest rates in 2022, many brokers’ cash sweep yields for investors failed to keep pace.
Some companies offer more attractive rates, though.
Fidelity, for example, provides the Fidelity Government Money Market Fund (SPAXX), yielding 4.94 percent as of Sept. 12, as the default on uninvested cash in brokerage accounts. And Fidelity IRA customers with cash balances less than $100,000 can earn 2.47 percent APY as of Sept. 25 on uninvested cash through the broker’s FDIC-insured deposit sweep program.
Meanwhile, Robinhood offers a 4.5 percent APY through its brokerage sweep program as of Sept. 26 — but only for Robinhood Gold subscribers. Everyone else receives 0.01 percent.
And Interactive Brokers offers interest rates on uninvested cash, but you’ll need a large portfolio with lots of idle cash to notice a meaningful difference. A client with $320,000 in net assets and $80,000 in brokerage cash can earn a rate of 3.79 percent APY as of Sept. 26. But that rate drops to zero if you have $20,000 in net assets and $5,000 in uninvested cash.
How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
You might not think about the idle cash in your brokerage account very often. But behind the scenes, your money may be earning your brokerage company a lot more interest than it is earning you.
Cash parked on the sidelines of your investment portfolio is still liquid, so you can access it anytime. This can make it seem like your money “isn’t doing anything.” But it is.
For the brokerage company and its affiliated banks, your money is earning relatively high interest. Yet many major brokers are returning less than 0.2 percent of that interest to customers.
A growing number of financial firms are coming under fire — and facing lawsuits — for their behind-the-scenes cash sweep accounts and the extremely low yields paid to customers, especially as the federal funds rate increased in recent years and banks presumably earned more interest.
By understanding how cash sweeps work, you can make informed decisions about your investments and ensure you’re getting the best possible return on your money.
Here’s what you need to know.