What to Do With Your Cash in a Low Rate Environment

Interest rates on savings accounts continue to creep lower. Here’s what to do with your cash in a low rate environment.

So, what should you do with cash?

Here we discuss the current economic environment, and how it should be considered with your strategy for holding cash.

Authors Anthony Saffer CFP®, CKA® & Alex Okugawa CFP®, CKA®,CEPA® 



Alex: Hi there and welcome to One Degree Advisors where we help families cut through the noise to make confident financial decisions. Anthony a question, we’re getting a lot lately is what should I do with my cash? Cash right now is at rock bottom rates, you know a lot of brick and mortar Banks or paying close to nothing. There’s some alternatives, you know online banks are paying a little bit higher rates.

I know for places like Ally or Marcus by Goldman Sachs they might be paying around .60% so not too bad, but what we want to do today, is paint a picture of where we’re at economically and why this is important as it relates to your cash, inflation, but then also talk about why you still may want to own cash going forward even at these low rates.


Anthony: Yeah. Dr. West Gray from alpha architect did a great summary paper of an academic paper on what the current landscape is like with a high government debt and people ask this question as well and it actually relates to our cash. The government has all this debt and the balance sheet is continuing to increase.

How are we going to get out of this this mess? It’s not politically attractive to let inflation run rampant. It’s not politically attractive to just increase taxes flat out.


Alex: Tax people to death


Anthony: So basically, what’s happening is called “Financial Repression” and it’s that money in cash.  And it’s where the government allows inflation to run slightly higher than interest rates. In other words, by keeping your money and saving it. You’re actually losing a little bit as we go and therefore the debt can decrease. This is what happened after World War II.


Alex:  It’s very stealthy. You know, you don’t see it right away. But over time you are losing money by keeping you know, just all that money in cash.


Anthony: And so it’s important to just recognize the context of that.


Alex: Now, that’s kind of the bleak side of this but there are some. There still are some positives to owning cash and one of those is just that liquidity and availability of cash.


Anthony: Yeah just being able to get to your cash and that’s why you know, when something comes up. The washing machine breaks, I need a new roof on my house, I need to buy a new car or repair it is the availability of money.


Alex: Exactly and that also leads into the second piece, which is you know “Cash is King”, cash provides flexibility.


Anthony: And this is maybe where something comes up that you’re not planning. Maybe it is an investment that you just want to be ready for. It gives me that flexibility where I can I could do something differently with it.


Alex: And of course the third point we see this all the time with retirees, especially heading into retirement creating systematic stable cash flow replacing the paycheck and that is you know, kind of short-term stability.


Anthony: Right and this is what is meant to coordinate with your long-term investments. So if I own, you know stocks or real estate for the long-term growth to really outpace inflation. Well those things fluctuate in value. Yeah, and so I need to be able to have something that’s short term so that I don’t have to sell those long-term assets when cash is needed.


Alex: And we saw that especially to recently in March right when the market dips people need cash. We’re not selling your stocks when they’re down 20-30 percent. We’re able to sell from those short-term securities really help keep that level and smooth out the ride.

Well, thank you Anthony. That was very helpful. You know, if you’d like us to dig into your plan, maybe take a look at your Investments.

We’d be more than happy to especially answer the question how much cash should I have right? Each situation is different. Each person’s plan is different. Some folks might call for a lot of cash others may not need that much. But again, it’s all dependent upon your plan and how we maximize your resources going forward if you’d like to give us a call, visit our website. We’d love to talk with you.

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