gray steel bucket on brown wooden bucket by Sixteen Miles Out courtesy of Unsplash.

Is Your Cash Working Hard Enough? Where to Put Savings in a Changing Rate Environment

Bryan Jordan CFP® |
Categories
Education
Retirement

For the last couple of years, "cash is king" wasn't just a saying—it was a high-return strategy. With high-yield savings accounts (HYSAs) and CDs paying 5% or more, many people were happy to stay on the sidelines. But as we saw in the recent inflation reports, the economic landscape is shifting. The Federal Reserve has signaled a new phase, and interest rates are beginning to adjust.

If your financial plan has been "sit in cash," it's time to ask: Is my cash still working hard enough? And what's the plan for 2026? 

The "Cash Drag" Problem When interest rates are high, holding cash feels great. But when rates start to fall, that same cash becomes a liability. This is called "cash drag". Every day your money sits in an account earning 2% (or less) while inflation is at 3%, you are losing purchasing power. The number in your account stays the same, but what it can buy goes down. With rates on HYSAs and CDs likely to decrease over the next year, you need a strategy. This isn't about pulling all your money out, but about being intentional.

A 3-Bucket Strategy for Your Cash Don't think of "cash" as one big pile. Divide it by its job.

Bucket 1: Your Emergency Fund (3-6 Months)

  • The Job: To be liquid, safe, and available for a true emergency (job loss, medical issue).
  • The Place: A High-Yield Savings Account.
  • The Strategy: Accept the changing rates. The job of this money isn't to get high returns; it's to provide security. Even if rates drop from 5% to 3.5%, it's still the best place for this bucket. Do not lock it up. Do not invest it.

Bucket 2: Your Short-Term Goals (1-3 Years)

  • The Job: To fund a specific, upcoming purchase (down payment, new car, major vacation).
  • The Place: CDs, I-Bonds, or a Treasury Bill (T-Bill) Ladder.
  • The Strategy: This is where you can be smart. If you know you need $50,000 in 18 months, you can "lock in" today's still-decent rates. Building a "ladder" of CDs or T-Bills that mature every 3 or 6 months gives you a good blend of return and access. This protects you if rates fall.

Bucket 3: Your Long-Term Wealth (5+ Years)

  • The Job: To grow and outpace inflation. This is your retirement, your legacy.
  • The Place: The stock market, bonds, real estate, and other diversified investments.
  • The Strategy: This is the money that should not be in cash. If you have "investment money" sitting in a savings account "waiting for the right time," you are missing out. The market's "record highs" should not scare you. Historically, the best time to invest for the long term was "yesterday".

The recent shift in inflation and interest rates is a signal. It's time to put your cash to work. Your savings account is a great waiting room, but it's not a permanent home.

How do you decide which "bucket" your savings go into?

Schedule a Consultation These are general strategies and may not be right for your specific situation. If you'd like to discuss how these concepts apply to your financial plan, please feel free to schedule a complimentary call: Schedule Here