The Fed is in transition. Here’s what to consider doing with your cash

The Fed announced in its May 2025 meeting that it would hold rates steady, which it has done since it last cut rates in December 2024. This leaves the federal funds rate between 4.25% and 4.5%, down from its September 2024 high of 5.5%, which is the upper range of the federal funds rate. The Fed now finds itself in a tough spot: Inflation has been coming down slowly, but recent tariff announcements could cause it to spike.

With the Fed having hiked short-term rates to over 5%, investors were well rewarded for holding that cash in liquidity strategies like certificates of deposit (CDs) and money market funds. Given that the Fed held rates steady again at its May meeting, what should investors consider doing now?

When to keep cash

There are a few key reasons to keep excess cash on hand no matter what the Fed decides with interest rates.

Day-to-day spending: Cash for day-to-day spending should stay in a deposit account that you can access as you need it. For everything else, it might help to think about what you intend to do with the cash.

Emergency savings: We often hear it’s good to have three to six months’ worth of “emergency savings,” so it’s important to keep this money easily accessible. This money can be held in deposit accounts, but if you’d like to earn a little more, things like money market funds or very liquid short-term bonds like T-Bills (where interest rates won’t impact the price as much) could also be good options.

Just note, while you can hold your money in a money market fund like any other mutual fund, the rate you earn on money market funds will change from day to day. Conversely, owning very short-term (or short duration) bonds will lock in those rates, but when they mature, you’ll need to reinvest them to keep earning something. And while you can sell them to access the cash, they are subject to price fluctuations based on the market.

Cash earmarked for explicit use in the near future (i.e., within 18–36 months) – say a big vacation or large purchase – might benefit from being invested in fixed income or a brokered CD that matures before or around the same time you might need the money. By doing this, you’ll lock in rates with this investment so if overall rates decline, your interest rate won’t change the way it might in something like a money market fund.

What to consider doing with what’s left over

Some investors today may also be holding on to a bigger cash buffer in light of recession headlines or as dry powder to invest. While this is totally understandable, it’s important to understand if doing so for too long puts your long-term goals at risk. Today’s 4%–5% rate on certain types of cash holdings might be better than a deposit account, but these opportunities are unlikely to last forever and may not be enough for you to achieve your dream retirement or other long-term goals.

If you haven’t done so recently, consider doing or revisiting your plan with a J.P. Morgan advisor to understand how you’re tracking to your long-term goals. This could also be a good time to review your goals – are they still the right ones? – and incorporate any changes in your circumstances. From there, you’ll have a better understanding of what plan to put in place to reach your goals.

Where to consider placing that money

One area to consider is fixed income. Many investors significantly increased their cash allocations over the past year given how high short-term rates were. But, as rates decline, your cash will ultimately be earning less. However, you can lock in today’s rates by buying longer duration bonds, or bonds with maturities further out.

Second, despite some economists’ expectations for a recession, our strategists do not think that a recession is the most likely outcome for this year. As such, they see opportunities to have exposure to equities both in the U.S. and abroad.  Notably, many U.S. investors own little-to-no international equities, and our strategists think now might be a good entry into developed markets like Japan and Europe.

Just remember, it’s important to understand the risks before you make any investment decisions. You can read more in our 2025 Mid-Year Outlook: Comfortably Uncomfortable.

The bottom line

Now is a good time to take a step back and think strategically about all of your holdings. Interest rates remain high, so your cash is still working for you, but the high rates won’t last forever. This makes it a good time to review your plan and make sure your overall investments are still working toward your goals. Cash is a core holding for everyone, and intentionally allocating it can not only help you make it work harder for you but also ensure that it’s working alongside your long-term plans.

View Disclosures