5 principles of keeping cash
With the stock market tanking cash seems to be king now. Money Magazine lists 5 things to know about keeping cash and getting the most out of it. They are listed below with some commentary.
1. Don’t keep it all in one place
If you have more than $250,000 in cash don’t keep it all in the same bank. Remember that you are only insured for up to $250,000 per bank. Also keep in mind that when 2010 roles around that rate drops back down to $100,000.
2. Shop around for better interest rates
You don’t have to keep all your money in a checking account at the corner bank. Shop around for better interest rates at other banks and consider moving your money into accounts that yield higher returns.
3. Money market funds aren’t a safe bet anymore
If you put your money into a money market fund before September 19th 2008 it is safe because the US Treasury is now insuring it in response to two funds breaking the buck. If you invested it after September 19th your money then the risk falls on you.
4. Don’t fret inflation
Yes interest rates are so low as to almost be a joke (1-2%) but inflation is hovering somewhere around zero. So you are still coming out ahead in terms of real return. Don’t expect inflation to stay at near zero forever. As the economy improves inflation will go up. Several economists are also expecting significant inflation to occur in response to the excessive spending and debt being accrued by the Federal Government.
5. Consider “almost cash”
Look around for other stable investments that fall somewhere between money market funds and bond indexes in the risk spectrum. I don’t think this is a good idea if you anticipate needing your money soon as the markets are still unstable, but if you are interested in investments with a moderate time horizon consider looking into these.
