What should I do with cash sitting in my bank account?

Idle cash refers to money that is not invested, not needed for daily expenses and not reserved for future purchases. When cash sits uninvested and earns little yield, it loses purchasing power over time, especially during periods of inflation and rising costs.

But putting idle cash to work doesn’t necessarily mean seeking the highest available yield. The first step is understanding the role that cash plays in your financial life. Some dollars may need to remain immediately accessible for everyday expenses or unexpected needs. Others may be earmarked for a future purchase, tax payment or other known expense. And some cash may not have a near-term use at all.

Once you’ve identified what the money is for, you can consider the appropriate balance of accessibility, stability and return potential – along with factors such as risk, taxes, fees and withdrawal restrictions.

A useful starting point is to think about your cash as part of a broader liquidity bucket – the money you want available to support your lifestyle, provide a financial cushion, fund upcoming purchases or obligations, and preserve flexibility for opportunities that may arise. Once you’ve sized those needs, you can more clearly identify cash that may be available for longer-term investing.

Why leaving cash sitting in a bank account can be a problem

Keeping money in a bank account can often feel like a conservative choice when it comes to covering bills, managing day-to-day spending and keeping an emergency cushion. Having accessible funds for these purposes makes sense; the issue, though, is what happens when “extra” cash sits in a low-yield account for long stretches of time. Even if your balance doesn’t change, inflation can reduce what that money can buy over time (purchasing power).

But remember, “fixing” the problem of idle cash isn’t just about chasing the highest rates. Higher yield usually comes with trade-offs. Depending on the option, those trade-offs could be less convenience (extra steps to move money), more rules (limits on withdrawals or penalties for early access) or more price fluctuations. Different options offer different trade-offs with regard to accessibility, stability and return potential – which is why the right choice starts with understanding when and why you’ll need the money.

“The conversation shouldn’t start with, ‘Where can I get the highest yield?’ It should start with, ‘What do I want or need this money to do for me?’ Once you understand the purpose and timing of your cash, you can make a much more thoughtful decision about where it belongs,” said Angelena Mascilli, Managing Director and Head of Wealth Management Banking.

There isn’t one universal best place to put cash. The better approach is to match the money – and where you store it – to your goals and timeline: Cash you may need soon typically calls for prioritizing accessibility, while cash you won’t need for a while may give you a chance to seek a higher yield, so long as you’re comfortable with the associated rules and risks.

Start by sizing your liquidity needs

Before deciding where to put your cash, start by determining how much liquidity you actually need. Rather than treating all of your cash as one pool, consider the different jobs you may need it to perform.

For example, your liquidity needs may include:

There’s no universal amount that’s right for each category. Your appropriate liquidity level will depend on your spending, income, upcoming obligations, comfort level and broader financial plan. Once those needs are covered, you can identify whether you have excess cash that may be positioned differently.

Once you’ve identified how much liquidity you need and what each portion is for, time horizon becomes an important consideration in deciding where to hold it. Cash you may need on short notice generally calls for greater accessibility and stability, while cash with a more predictable or longer time horizon may offer additional flexibility.

Day-to-day cash: Prioritizing accessibility and stability

For cash you expect to use in the near future, the priority is generally to keep it stable and readily accessible. Money market funds (MMFs) can be useful for day-to-day cash because they often offer higher liquidity with lower risk, not to mention generate income through interest (unlike a traditional savings account).

High-yield savings accounts (HYSAs) and bank money market deposit accounts are among the other options that may be appropriate for these needs. A key feature of both HYSAs and bank money market deposit accounts is that their rate can change over time. Annual percentage yields (APYs) may move up or down based on broader interest rate conditions or at the discretion of the financial institution. That makes it important to consider an account’s accessibility and overall features – not just its current rate.

These are also deposit accounts, which may come with Federal Deposit Insurance Corporation (FDIC) insurance (for banks) or National Credit Union Administration (NCUA) insurance (for credit unions), up to applicable limits and subject to eligibility. You may still want to confirm what is covered and how your balances are held, especially if you keep cash across multiple accounts.

When evaluating where to hold cash you may need soon, consider factors beyond the headline rate, including:

Reserve cash: CDs and T-bills (how laddering can keep money accessible)

Once you’ve identified cash that you’re unlikely to need immediately, you can begin considering solutions that may trade some day-to-day access for potentially higher yield. Depending on your time horizon and liquidity needs, certificates of deposit (CDs) and Treasury bills (T-bills) may enter the picture because they are built around defined time frames.

CDs are bank deposit products that typically pay interest over a set term. You commit the money for a period of time, and in exchange you may receive a higher rate than would some fully liquid savings accounts. The downside is flexibility, as withdrawing early may trigger a penalty and reduce what you ultimately earn.

T-bills are short-term U.S. Treasury securities that mature in one year or less. Rather than earning interest in the same way a bank account does, T-bills are commonly purchased at a discount and repay their face value at maturity. Many investors often prefer to plan to hold to maturity, keeping timing predictable.

“Laddering” can help you stay flexible while putting cash to work. The idea is to split your cash into smaller pieces that mature at different times. For example, instead of putting all your cash into a single 12-month CD or T-bill, you might divide it into four equal parts spread across 3-, 6-, 9- and 12-month rungs so part of your cash comes due at regular intervals. As each rung matures, you can use the money, move it to a more liquid account or roll it into a new rung – without having everything locked up at once.

“Laddering can be a simple way to balance access and yield. Instead of locking up all of your cash for the same period of time, you can stagger when portions become available, giving you more flexibility while still putting that cash to work,” said Mascilli.

It may be worth confirming the tax impact for your specific circumstances. Investors should remember that interest is generally taxable, but the details vary by product and your individual situation. In some cases, income from Treasuries may have state and local tax advantages. Speak to a qualified financial advisor if you are unsure about which options are right for you. And since tax rules can be complex and vary by product and individual circumstances, consider speaking with your tax advisor about potential federal, state, and local tax treatment.

Strategic cash: Cash for longer-term needs (brokerage accounts)

For cash tied to goals further out, you may have more flexibility in how you put that money to work. Depending on your time horizon, liquidity needs and risk tolerance, brokerage solutions can expand the range of choices available – from Treasury notes and brokered CDs to high-quality bond funds or bond ETFs (exchange-traded funds).

The biggest decision is whether you want a locked-in maturity date or are comfortable with market price fluctuation along the way. Let’s consider some examples.

Remember that protections differ by product and account type. FDIC insurance generally applies to eligible bank deposit products (and NCUA for credit unions). Securities Investor Protection Corporation (SIPC) coverage generally applies to eligible assets held in a brokerage account if the brokerage firm fails, but it notably does not protect you from market losses if an investment’s price falls.

Finding the right mix comes back to the fundamentals: what the cash is for, when you may need it, how much access you need and how much price fluctuation you’re willing to accept.

The bottom line: A simple plan for idle cash

A simple plan for idle cash starts by right-sizing your cash. Begin with what you need for emergencies, everyday spending and other near-term needs, keeping those dollars accessible and stable. From there, identify cash you can set aside for longer and consider whether it could be working harder based on when you’ll need it and how much access you want to maintain.

For cash you’re unlikely to need immediately, solutions such as CDs and Treasury bills may offer opportunities to earn yield while maintaining a defined maturity date. Laddering those maturities can also help create regular access points. For cash with a longer time horizon, brokerage solutions can provide additional choices, but the right approach depends on your liquidity needs, risk tolerance and when you expect to use the money.

If your time horizon extends beyond five years, consider whether those dollars still need to be held as cash at all. Depending on your goals and risk tolerance, a diversified, long-term investing approach may be more appropriate as part of your broader financial plan.

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