Where to Stash Your Cash: Short-Term Goals (Part 1)

Charity Yoro The Practice of Packing Light


When people ask me why I preach personal finance (…and let’s be honest, I may not get asked this so much as I tend to offer my opinion), I always come back to the basics: Too many of us don’t know what a brokerage account* is.

Now, is a brokerage account the end-all be-all to financial literacy? Certainly not. But it’s a pretty great gauge, because if you’re the type of type of person who knows how or why you might open a brokerage account, then you’re likely putting your money in places besides, you know… the hole in your mattress, or (gasp!) a basic savings account.

…Scratching your head when I say “brokerage?” Then this article is for you – let’s find you a new place for that cash.

20140509-money-calculatorTo do this, let’s first consider your monetary goals. Are your needs short-term, mid-term, long-term or (most likely) some combination of the three? (For a refresh on this topic, visit my last post on How to Allocate Your Savings.)

Good! Now you’ve got that settled, we’re going to talk about short- and mid-term goals (long-term to be covered in a future post!). For these types of goals, the key is this: The sooner you need funds, the safer those funds need to be, and the faster you should be able to access them.

Money is safe when we can predict with certainty its value at the time we need it. Cash is an example of a safe asset. If I sock away $100 in my mattress (or better yet, a basic savings account), then that $100 will still be there a year from now. Compare that to the stock market – a less safe place for my money – and you can see what I mean: The $100 I invest in the stock market today may be gone in a year (though yes, it conversely may have tripled in value). The safer money is, the less return we get for it, but the more assurance it’s there when we need it.

Money is more accessible (a.k.a. liquid) the faster we can get it. The most accessible places for your money give you immediate access to your cash, like your checking account. The least accessible places for your money, like an invested retirement account or worse, a real estate investment, take time to convert the asset into cash you can use.

That said, here are the safest, most liquid places for you to stash your cash:

Checking account – Deposit cash into this account through your local bank. Access it via your debit card or checkbook. Most safe. Most Accessible. No return.

How to get started: Open through your local bank.

Savings account – Deposit cash into this account through your local bank and earn a tiny return, so small it may not even compare to inflation. Most safe: Many savings accounts are insured by the FDIC, meaning your money is guaranteed by the government (up to $250k), even in the case your bank fails. Very low return.

How to get started: Open through your local bank.

Certificate of deposit (CD) – A bond, in which you (the purchaser) buy a CD for a price, and at the end of a short, fixed amount of time (called the maturity – usually six months, one year, etc.) you earn that price, as well as a bit of interest, in return. CDs are just as safe as savings accounts but a bit less liquid, as they are intended to be held until maturity. However, they do typically earn a little more of a return than a savings account. Good option for any money you have earmarked for withdrawal in 1-2 years.

How to get started: Purchase through your local bank or brokerage account. “Brokered” CDs can be sold prior to maturity.

Treasury bill / Treasury note (a.k.a. T-bill / T-note) – Bond issued by the government, which – similar to a CD – has a fixed maturity and rate of return. They are regarded as the safest investments, as the government backs them. Again, good option for 1-2 year investments.

How to get started: Purchase directly via

Money market fund – A type of investment account that lets you invest money in multiple short-term, low-yield and safe assets, like CDs, commercial paper and T-bills. When you deposit $100 into a money market fund, that $100 will be split into 100 tiny investments into various assets. The idea is that if one asset does poorly, then you lose just $1, but the other $99 will make up for it. (This is called diversification.) These funds typically earn a bit more than savings accounts and are a good idea for short investments (1-3 years).

How to get started: Purchase through your brokerage firm.

High-grade commercial bond (a.k.a. commercial paper) – Bond issued by a trustworthy corporation. These are not FDIC-insured and carry a higher risk than T-bills or CDs, but are considered safe assets. These bonds mature in less than 270 days, making them a good short-term investment option.

How to get started: Purchase through your brokerage firm.

*A brokerage account is one you open with a specific type of bank that lets you invest the funds within that account. My Charles Schwab brokerage account lets me do this. So does e*trade.