Remember That Cash is a Legitimate Asset Class

Money

With the beginning of the year focus on tax refund checks, there are some people who believe that the refund dollars are going to go from the checking account to pay off accumulated debts incurred during 2018. Other people will be using it to make a major purchase, such as a down payment on a new car. But there are a fair amount of Americans who will redirecting that money to their savings or vacation account for later use.

If you are in this latter category the first question you need to ask is what is your current rate of return on your liquid cash accounts, such a savings. The Federal Reserve has increased the interest rate several times over the past year, and those actions resulted in banks matching the increase in the form of a higher rate of return on savings accounts and other financial instruments. If you are not taking advantage of these higher rate accounts it is time you sat down and did some research on how you can move some money around to maximize your rate of return.

One nice thing about cash is that it is very flexible as an asset class and investment vehicle. This leaves you many options on what to do with your tax refund, whether in part or in whole. Check to see what your primary bank is paying you on your savings account. If it less than 2 percent, you are falling behind the inflation rate and losing money. But you don’t have to leave your current bank to take advantage of the higher rates available elsewhere.

First, the amount you have in your savings account will determine your course of action. If you are losing 2 percent on $200 that does not have the same impact as losing 2 percent on $20,000. The amount of money you want to move and where is a personal decision, but you can choose to leave some of the $20,000 in your current bank and move the lion’s share to the account with the higher rate of return. You can also considering opening up a separate account just for your tax refund cash.

Online banks are more likely to offer the highest rates of return, but choose carefully. Be sure to check for any hidden fees or terms and conditions that may prevent you from having immediate access to your cash. A savings account that allows ATM withdrawals will likely offer you the greatest flexibility and access to your cash.

You may also be able to link your existing checking account with your new savings account, allowing you to freely move money between the accounts. This may come in handy when you need to move money into your checking to make a large, unexpected purchase or just move money into the savings account from checking that has no immediate use.

All the investment advantages of cash ought to create in your investment mindset a section where you put cash in the “protected asset class.” The reason is that it is possible to have too much cash, so you lose the tax and investment advantages of longer term options. Another reason to protect your cash is its fluidity and ease of access. Cash can just about anything if you have enough of it, so if you are one of those people who do not have fiscal discipline you may find yourself spending money potentially earmarked for investment on things you really don’t need.

In any diversified portfolio there needs to be a certain amount of liquid cash, and maximizing the rate of return on that cash is a sound practice for both the short and long term. If you are one of those people who will be using your tax return to start down the road as a serious investor, it will take some time to find the right amount of liquid cash to have. Use the rule of thumb that says it is generally better to have too much than not enough.

Finally, while it is true that the rate of return on savings accounts has been pitiful over the last decade, you should now look around at all your various accounts and even around the house to gather up the smaller amounts that you rightfully believed weren’t worth the effort to put in a bank account. When you open the new, higher yield savings account you can stash all the loose change there and know you are at least making something on it.



Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Chanel
The 20 Best Coco Chanel Quotes That Apply to Business
Vince Lombardi
The 20 Best Vince Lombardi Quotes That Apply to Business
Steven Schonfeld
10 Things You Didn’t Know about Steven Schonfeld
Yves Guillemot
10 Things You Didn’t Know about Yves Guillemot
Vermont
How to File for Unemployment in Vermont
Utah
How to File For Unemployment in Utah
Tennessee
How to File for Unemployment in Tennessee
South Dakota
How to File for Unemployment in South Dakota
Wineries in a Carriage
The 20 Best Things to Do in Temecula, CA for First Timers
Lake Catherine State Park
The 20 Best Things To Do in Hot Springs, AR For First-Timers
Newport Pier
The 20 Best Things to Do in Newport Beach, CA for First Timers
The Blind Tiger
The 20 Best Things to Do in Shreveport, LA for First Timers
2021 Ram Rebel TRX
A Closer Look at The 2021 Ram Rebel TRX
2021 Mazda BT-50
A Closer Look at the 2021 Mazda BT-50
2020 Mazda MX-5 Miata 1
A Closer Look at the 2020 Mazda MX-5 Miata
2020 Polaris Slingshot SL 4
10 Things You Didn’t Know About the 2020 Polaris Slingshot SL
A Closer Look at The Oris Carysfort Reef Limited Edition
MB&F Bulldog
A Closer Look at The The MB&F HM10 Bulldog
A Closer Look at the Favre-Leuba Raider Sea King
A Closer Look at The Casio Pro Trek PRT-B50 Black Titanium
Cole and Dylan Sprouse
How Cole Sprouse Achieved A Net Worth Of $8 Million
Whitney Cummings
How Whitney Cummings Achieved a Net Worth of $30 Million
Bella Hadid
How Bella Hadid Achieved a Net Worth of $25 Million
Cyndi Lauper
How Cyndi Lauper Achieved a Net Worth of $50 Million