Why Cash Still Matters (Even When Yields Are Falling)

After a few years of unusually high savings rates, cash is starting to feel a little less exciting.

With the Federal Reserve cutting interest rates several times in 2025, the once-attractive yields from high-yield savings accounts and money market funds have been trending lower. Many people are now wondering whether it’s still worth holding much cash at all.

The short answer is yes, but not for the reasons you might think.

Cash plays a critical role in every financial plan. It is not there to make you rich. It is there to keep you from going backward when life happens.

Cash Isn’t for Growth, It’s for Stability

Cash gives you flexibility, not returns. It allows you to handle the unexpected without selling investments at the wrong time or disrupting your long-term goals.

Its purpose is protection, not performance.

Think of it as your personal safety net, the one that gives you room to make smart decisions instead of rushed ones when life throws a curveball. That might mean covering a job transition, a medical expense, a tax payment, or even the down payment on a home.

Without cash, even small surprises can push you into costly decisions like using high-interest credit cards or selling investments during a downturn.

How Much Cash Should You Hold?

The right amount depends on your life stage, income stability, and upcoming goals, but here’s a good framework(tweak based on your risk tolerance):

• Employees with steady income: 3 to 6 months of essential expenses.

• Business owners or variable earners: 6 to 12 months of expenses to smooth out income fluctuations.

• Short-term goals (1 to 3 years): Keep that money in cash or short-term instruments.

If you’re planning to use the funds in the next few years, whether it’s for a home purchase, a new business venture, or another goal, keeping it in cash makes sense. But if you’re not planning to touch it for five to ten years or longer, it likely belongs somewhere that can grow.

The Myth of “Saving Your Way to Wealth”

This is where many high earners get stuck. You cannot save your way to financial independence.

Cash can protect what you’ve built, but it doesn’t create wealth. Once you have your emergency fund and short-term reserves in place, your excess cash should be working for you, not sitting idle.

That could mean investing in the market, contributing more to retirement accounts, or even deploying funds into your business or real estate. The key is to give every dollar a job.

Holding too much cash for too long often feels safe, but it quietly erodes purchasing power over time. Even modest inflation means that $100,000 today will buy far less five years from now.

The True Value of Liquidity

For business owners and investors, cash also represents opportunity.

It allows you to act decisively when opportunity presents itself, such as buying an undervalued asset, expanding a business, or investing during market pullbacks.

That is the hidden benefit of liquidity. It is not just a defensive tool, it is an offensive one.

Having cash available when others don’t is often what separates those who survive from those who build wealth.

Where to Keep It

While rates have dropped, it still matters where your cash lives.

Keep your short-term funds in places that are accessible, insured, and earning a reasonable yield:

• High-yield savings or money market accounts for emergency reserves.

• Short-term Treasuries or Treasury bills, which are generally exempt from state income tax.

• Municipal money market funds for investors in higher state tax brackets seeking additional tax efficiency.

• Business reserves held separately from personal funds for clarity and control.

The goal is not to chase yield, but to make sure your cash is serving its purpose and managed efficiently.

Final Thoughts

Cash will never be your highest-returning asset, and it is not supposed to be.

Its role is to protect your plan, give you options, and help you handle uncertainty without panic. Once you’ve set aside what you need for stability and short-term goals, the rest of your money should be directed toward growth and long-term wealth creation.

In a world where yields fluctuate, the value of cash has not changed, only the expectations around it have.

If you want to revisit how much cash makes sense in your financial plan and explore options that make your short-term funds more tax-efficient, you can schedule a quick planning review here: Book a Year-End Review with WealthBound Advisors

Disclaimer: This blog is for educational purposes only and does not constitute financial advice. Please consult with your attorney, advisor, tax professional, or mortgage lender before making a major purchase decision.