Is Your Cash Working as Effectively as it Should?


You work hard to save and accumulate your money. Leaving it in the wrong accounts can cost you money. The right combination of accounts, based on your needs, can help your money work as hard for you as you did to earn it. While many people don't think of "cash" as an investment, it is often a substantial portion of your financial portfolio. Whether accumulated in checking or savings accounts or short-term certificates of deposit, you should make sure your money is working in the most effective way possible. Earning competitive returns on your "cash investments" should be part of your overall financial strategy.


Here are some thoughts to keep in mind as you create a plan for your "cash investments."


• Liquidity and activity levels usually influence the interest rates offered on different types of cash accounts.

• Liquidity means how quickly you can access to your funds.

• Activity means how often you can use the account.

• Generally, accounts that allow more liquidity and more activity pay lower interest rates.


For example, a checking account, which provides convenient access to your money, will usually pay lower interest rates than a savings account that limits the number of monthly transactions. With a Certificate of Deposit (CD), you commit your funds for a certain term and earn higher interest rates. CD terms typically range from a three months to five years with the longest maturity CD usually paying the highest rate. However, CDs don't allow for early access without an interest penalty.


Here is a typical chart of interest rates* for different types of accounts.

*Note: These are not current rates, this article is strictly for the purpose of demonstration. To view different account options at FNBT please click here. For information on our current fees please click here.

Account TypeAPY*Minimum balance to open
Checking0.05%$100
Savings0.10%$100
3-month CD0.25%$1,000
6-month CD0.35%$1,000
1-year CD0.60%$1,000
3-year CD2.15%$1,000
5-year CD2.95%$1,000



Choosing the best account, or combination of accounts, depends on how you use your cash. You may want to consider a strategy that combines two or three accounts for your particular cash needs. To illustrate, let's say you have a total of $10,000. A checking account that you use for regular monthly expenses has a balance of $4,000. Your savings account, which you use to save for major expenses (i.e., vacation, new car, down payment on a house), or for unexpected expenses, has a balance of $6,000. Using the example above, with $4,000 in your checking account and $6,000 in your savings account, you will earn total annual interest of $8.

Account TypeAverage BalanceAPY*Interest Earned
Checking$4.0000.05%$2
Savings$6,0000.10%$6
Total$10,000$8s



But look what happens if you distribute your funds differently. Let's assume you can reduce your average checking balance by $1,000 and then use your savings account more as an emergency source of funds than as a longer-term accumulation account. The following example uses CDs of 3-month, 6-month and 1-year terms to earn higher rates, yet still provides liquidity for emergencies and or making that major purchase at the end of the year.

Account TypeAverage BalanceAPY*Interest Earned
Checking$3,0000.05%$1.50
Savings$1,0000.10%$1.00
3-month CD$1,0000.25%$2.50
6-month CD$2,0000.35%$7.00
1-year CD$3,0000.60%$18.00
Total$10,000$30

Rearranging your cash into accounts that more effectively reflect your liquidity needs will earn you an extra $22 in a year.

Of course, you have to pay attention to the features of the accounts you choose for your cash investments. By taking into consideration how you use your money, however, you can improve the returns and possibly make that major purpose a little sooner. To learn more about your account options with FNBT click here, and remember if you ever need help reviewing your finances we are here to help.

*APY=Annual Percentage Yield