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  • Writer's pictureGeoff Wells

The Expected Return on Cash is Important Again

For much of the last decade, short-term interest rates have been near 0%. During this time, there wasn't a significant enough difference between the rates earned on checking accounts, savings accounts, CDs, money market funds, or US Treasuries to warrant the extra time and energy needed to manage short-term emergency cash reserves.

Fast forward to early 2023 and the situation is significantly different. The Federal Reserve has repeatedly raised interest rates to combat inflation. These actions have driven current (as of 2/13/23) money market rates (SWVXX) to 4.47%, based on the 7-day yield. Meanwhile, many banks and credit unions are still paying out minimal interest on deposits.

The following chart shows the national average rates paid by banks and credit unions (for which data is available) on savings accounts. Data is as of January 2023 and published by

At the same time, the next chart from the same source shows the national average rate (for which data is available) paid on Treasury Money Market Funds over the same time frame:

Although the graphs look similar in shape, there is a large difference between the rates paid (0.33% vs. 4.33%). As such, it makes sense to reevaluate where to hold emergency or short-term cash. If you are holding a large balance in a checking/savings account, you may consider moving money either to a brokerage account where the funds can be invested in money market funds or to some other financial instrument with similar risk to cash where you can increase your expected return. Using an example of a $50,000 emergency reserve account and the quoted 4.33% money market rate, you could potentially earn $2,000 more annually on a cash account vs. the average savings rate of 0.33%, assuming rates stay similar.

Please note that money market funds and short-term treasuries do not possess the same protections as an FDIC checking or savings account, but are generally considered similar assets to cash. Please be sure to assess your future needs for the funds before changing your approach.

If you have questions about what you should do with your own short-term cash reserves, please let us know and we would be happy to guide you on the relative advantages and drawbacks of alternatives.


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