For generations, sitting on cash was presented as the height of money foolishness as even the elusive 7% high-yield savings account can never come near the kind of returns that one can gain by flipping a home or making even the most risk-averse investment in the stock market.
All of that does not even take into account the inflation that will dwindle any savings one made by the time you need them. With average inflation reaching 8% in 2022, money kept with a 4% rate over the same time period is a loss in purchasing power. The average saver would also have an average interest rate that is closer to just 1%.
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But according to financial advisor Heather Ettinger, we are currently in a unique situation in which sitting on some cash for a short time period is not the loss that it used to be.
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'This is real money now,' investors say of cash in the current climate
As she explained to CNBC, the multiple rate hikes that the Federal Reserve made to combat inflation over the last year bring the federal funds target rate range to between 5.25% and 5.50%. While this is bad news for anyone over-relying on credit cards (you may have already noticed those monthly payments get more expensive), those with cash in their bank accounts will be able to make more money on interest than they did before as long as they choose the savings account with the best yield.
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"It's not all bad to be sitting on some cash," Ettinger, a chairperson at Cleveland-based Fairport Wealth, said.
Michael Halloran, who heads partnerships and business development at financial management platform MaxMyInterest, also crunched numbers showing that someone with $1.5 million in savings can earn up to $50,000 in interest over 10 years while $300,000 yields $15,000 during the same time period.
Coupled with other investment strategies, this can be a sizeable chunk of cash one earns without taking on the risks associated with a real estate market that's stabilizing from years of unfettered growth or volatile stocks. Inflation is also in the process of cooling and may not cause as much of a loss in purchasing power.
'Inertia is one of the strongest powers in nature' (don't let it seep into your savings strategy)
"What I hear from advisors these days is the phrase, 'This is real money now,'" Halloran said.
Those with smaller amounts of cash to either save or invest may have other considerations — they may not have enough to make a large investment while cash is also easier to access if one needs it during an emergency.
In either case, maximizing one's wealth will come down to turning cash into a conscious decision. Instead of simply leaving it in one's main checking account to wait out the current market, it is a good idea to go through different savings accounts to see which one will give the best yield at the lowest cost. Popular banks like Citizens (CZNB) -) and Barclays (BCS) -) both offer some with a return rate nearing 5%.
"Inertia is one of the strongest powers in nature," Tim Harrington, a San Rafael, Calif.-based CFA and founder of Longview Financial Advisors, told CNBC. "You should shop around."
