How hard is your cash working for you?

Find out why saving for the near term can be more important than you think

19 Jun 2019

Most people save in one way or another—and with good reason. Saving can help you become more financially secure and leave you better prepared for a future that's often hard to predict.

Socking away some of your cash in a savings account can be an important part of your financial plan. And, if you dig deeper, there are real benefits to allocating cash into savings accounts to provide the benefit of added security and to help you achieve your financial goals.

Jenny Kurz, Director of Deposit Products at UBS, and Shinjit Ghosh, Managing Director, Head of Deposits and Cash Management at UBS, put it this way: “There’s cash for everyday needs and then there’s extra cash you save, which is separate from your investments. It’s important to consider a savings account that can make that extra cash work harder for you.” Consolidating cash and investments in one place can help you get a holistic view of your wealth.

Understand the different uses of cash

Cash serves different purposes depending on your needs. There’s the everyday cash you keep in your checking account to cover non-discretionary expenses, such as rent, groceries or your utility bill. Then there’s the cash you might allocate in your investment portfolio, alongside other kinds of assets like stocks and bonds. Finally, there is cash that is “liquid” but that you don’t need day to day—which you might use for emergencies or saving for your next car or a home renovation.

Add to your ‘comfort cash’

It’s important to look at short-term savings as part of your overall financial goals.

Having a healthy amount of cash in a savings account can also give the feeling of having a little extra security—what Ghosh calls “comfort cash.” He explains, “We all know there are needs for you to keep an excess amount of cash, but for some it’s more about psychological comfort, a feeling of safety.”

Keeping a portion of your assets in cash is also part of a liquidity strategy, which is designed to provide a stable source of income to meet near-term spending needs. If you proactively set this up in good times, you’ll have a buffer against financial distress during a turbulent market.

“Think of it as a security blanket,” Kurz says. “It’s cash on the side that’s not already locked into any other investments, so you don’t have the fear of the potential need to sell securities at an inopportune time.”

Pursue near-term goals

Beyond providing a financial buffer for emergencies, you can use additional savings to enjoy some fun and excitement. For example, if you have a big vacation planned a year from now, putting aside cash in a high-yield savings account can translate into extra activities during the trip. It also can be much easier to motivate yourself to save when you know the money is going to a trip abroad or an unforgettable cruise. Or, maybe your dream vacation home is getting into the final stages of completion. Additional short-term savings can help you pay for new furniture and interior decorations.

When you’ve planned for these sorts of short-term goals and put your money in a savings account, you don’t have to disrupt your other accounts or investments to cover costs.

Make your cash work a little harder

Not all savings accounts are created equal. Traditional bank savings accounts offer little in the way of interest rate benefits, which can easily get wiped out through monthly or yearly fees. High-yield accounts, in comparison, offer higher rates on your savings. Keep in mind that deposits in savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC),1 which is up to $250k (per each insurable ownership capacity in which you hold deposits).

At the end of the day, Ghosh says it’s all about allocating your cash based on your needs and putting the savings cash where it’ll work a little harder for you.

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