Morgan Stanley
Wealth Management

3 Ways to Manage Your Cash More Strategically

Dec 17, 2024

Cash can be viewed as an asset class with varying solutions available to balance your short-term needs alongside your long-term financial goals.

Key Takeaways

  • Cash can be categorized into three types: transactional cash for everyday expenses, savings cash for emergencies or major purchases, and strategic longer-term cash that may be allocated as part of an investment portfolio.
  • Transactional cash is best kept in an account designed for cash management with easy access for bills and everyday spending.
  • Savings cash can be placed in a high-yield savings account to potentially consider solutions that could generate a competitive yield.
  • Strategic cash can be placed in a certificate of deposit (CD) or a money market fund (MMF) to help reduce portfolio risk and generate a competitive return.
  • Understanding the purpose of each dollar can help balance short-term needs with long-term goals and maintain financial flexibility.

Believe it or not, not all cash is created equal. Just like it’s prudent not to put all your money into one stock or asset class, you should consider which solutions are most appropriate for your specific financial needs.

 

Your cash can be grouped into three buckets: transactional cash, savings cash and strategic cash.

 

The more you understand how you use your cash and the types of solutions available, the more strategic you can be to earn competitive yields, unlock exclusive benefits and avoid transaction fees. Here’s what you need to know to be more purposeful about where you place your cash. 

  1. 1
    Transactional cash

    Transactional cash is the money you generate from income (e.g., paycheck, government benefits, pension, investments) and use for everyday costs and short-term needs.

     

    Because you want this cash to be spendable, it often makes sense to keep it in an account designed for cash management. This makes the cash easily accessible for immediate spending through your debit card, Zelle®, check writing, online bill pay, and other money transfer capabilities. With this cash, you’ll want to keep enough in there to cover your expenses, along with a buffer to cover unexpected costs.

     

    Traditional banks may charge transaction or service fees, so you’ll want to carefully review which fees may apply based on your spending habits. Monthly account fees may also exist but may be waived by meeting certain criteria. 

  2. 2
    Savings cash

    Savings cash is the money that you set aside in case of an emergency or that you need a reliable plan to spend at some point on things like:

    • a major purchase
    •  building up a down payment for a home purchase
    • paying for a life event (e.g., wedding)

     

    Placing this cash in savings—especially a high-yield savings product—can help generate a more competitive yield until you have a need for it. For some people, separating their savings cash from their spending cash helps them spend less by making that cash “out of sight, out of mind.”

     

    Consider savings solutions that avoid account fees, don’t require balance minimums, offer immediate liquidity and FDIC insurance. 

  3. 3
    Strategic cash

    Strategic cash can be used as part of your overall investment strategy to help you reduce portfolio risk, keep funds available for other investments and generate a competitive return.

     

    Strategic cash is commonly placed in one of two vehicles:

    • Certificate of deposit (CD): CDs offer a fixed interest rate, generating a guaranteed return over a set period of time. Interest rates of CDs are typically higher than those of savings solutions, as you can’t access your cash until the CD matures. Nevertheless, you can sell a CD on the secondary market but is subject to price and liquidity fluctuation.
    • Money market fund (MMF): A MMF is a type of mutual fund that invests in short-term, high quality investments with the goal of generating a higher return than a traditional savings account. Unlike with a CD, you can take money out a MMF without penalty, but keep in mind that a MMF generates a variable interest rate based on the performance of its underlying investments. 

Enhance the potential of your cash

By understanding the purpose of each dollar–spending, saving or investing–you can use your cash as an asset to balance short-term needs with your long-term goals while maintaining your financial flexibility.

 

Morgan Stanley offers clients a modern alternative to a traditional bank with no cash management fees and access to exclusive benefits (available to brokerage account clients). Work with your Morgan Stanley Financial Advisor to review your cash holdings across your accounts, to make sure your cash is where you want it to be to help you achieve your financial goals. 

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