August 8, 2025

Is Your Cash Working for You?

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Molly Chase, Northern Capital Management

While short-term interest rates may have peaked in September of 2024, interest earned on cash investments remains attractive.

Prior to the Federal Reserve's rate-hiking cycle that began in 2022, investors had been paid essentially zero on cash balances since the 2008 housing crisis. More recently, it has been profitable to periodically review savings accounts to ensure your financial institution is paying a competitive rate.

Some common cash investment vehicles include:

High-yield savings account: This is a savings account that pays a higher interest rate than a traditional savings account. The higher interest rate is known as the annual percentage yield. The APY is the rate of return you'll receive for your deposited funds over one year, including compound interest. High-yield savings accounts are federally insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration for up to $250,000.

Money market funds: A money market fund is a mutual fund that invests in short-term debt securities, cash, and cash equivalents. The fund pays dividends to investors based on the interest earned from these securities. They can provide higher yields than savings accounts and are designed to be stable and liquid, with easy access to your money. Money market funds are not insured by the FDIC.

It is important to note: The yield on high-yield savings accounts and money market funds are adjusted to reflect movements in short-term interest rates.

Certificate of deposits: A CD is a savings account that holds money for a set period of time in exchange for interest. CDs are offered by banks and credit unions. At the end of the term, you receive your original deposit plus interest. The term of a CD can range from a few months to several years. You agree not to withdraw the money early, or you may face a penalty. Most CDs are federally insured by the FDIC for up to $250,000.

When choosing a savings account: It's important to remember that you don't have to pick just one. Consider a money market fund offered by a low-cost mutual fund company such as Vanguard in addition to accounts held at your bank. The ability to move funds easily between financial institutions has made the task of managing cash in multiple accounts far less cumbersome.

Cash and cash equivalent accounts can provide liquidity, portfolio stability, as well as a place to hold emergency funds. Current yields on cash make it worth the time spent to seek out competitive offerings. While cash yields offer some inflation protection, cash and fixed income investments have historically not been able to help investors achieve one of the most important long-term investing goals: returns in excess of inflation. With this in mind, it's important to consider other investments alongside your cash balances to meet long-term investment and financial goals.

Questions?

Northern Capital Management advisors are certified financial planners with extensive experience working with medical professionals. You may reach us through our WSMA member contact form.

The Washington State Medical Association is a client of Northern Capital Management and Northern Capital Retirement Services and receives compensation for promoting our services. As a result of the compensation arrangement there is an inherent conflict of interest. Disclosure

Northern Capital Management