Cash: are the good times back?

Blog

16 Apr 2019

I've written a lot about cash as an awful investment asset over the last decade. Not only was it pretty much the worst performing asset you could hold, but it was really easy to see ahead of time that it would perform terribly on an inflation-adjusted basis. That's changed pretty dramatically, as inflation expectations are now lower than Treasury yields across the entire yield curve.

Some one-year certificates of deposit (CDs), which are FDIC insured up to applicable limits, are offering yields upwards of 3%. However, there's a lot of variance depending on the issuer. Nationally, the average one-year CD currently pays 0.88%, the average checking account pays 0.08%, and the average savings account pays 0.10%.

I'm not suggesting that anyone sell stocks or even bonds to buy a CD, but many of us have cash that could earn more by holding it in a CD. Whether you're starting to build out a liquidity strategy for retirement, need to set aside some cash for a large expenditure in 2020, or simply holding 6-12 months of expenses as an emergency fund, it's time to pay attention to the rate of return you're getting on your cash

Fig. 1: The market is now pricing positive inflation-adjusted cash and Treasury returns

Source: Cleveland Federal Reserve, UBS.

Author:

Michael Crook, Head Americas Investment Strategy, UBS Financial Services Inc. (UBS FS)