Managing Liquidity

Finding the right balance for your cash

As you consider your wealth planning and investments, much of the focus is typically on analyzing returns for your investment portfolio. However, effectively managing your cash and maintaining liquidity can be equally important parts of your overall wealth strategy. Finding a balance between maintaining accessible cash holdings and putting your money to work in short-term growth products with relatively modest risk is key to optimizing your cash.

Developing your cash management strategy

Having enough liquidity in your portfolio—the ability to access cash when you need it—can allow you greater flexibility and responsiveness as opportunities, investments, and major purchases arise. However, allocating too much to lower-yielding accounts may result in missed opportunities for growth. 

There are a number of things to consider when deciding which cash management product meets your needs:  

• Liquidity: how quickly and conveniently you can access funds 
• Yield: return on investment, driven by interest rates and other factors  
• Risk: stability of principal, insurance, and security of assets  

For daily and near-term expenses, having convenient access to funds through payment services such as checks, debit card, or electronic transfers (e.g., wires or ACH) may be desirable.  

Saving for specific future spending like tax payments, tuition or upcoming home expenses could be put into products with a higher yield, but result in more limited access. 

For long-term liquidity, you may have flexibility to consider products that maximize yield.

Typical cash management options

Banks, broker-dealers and other financial institutions may offer a variety of cash management options to meet the liquidity needs of consumers.  

Checking accounts

• Checking accounts are non-maturity accounts designed to provide customers the ability to hold liquid assets for transacting purposes.  
• These accounts do not limit withdrawals and typically provide additional payment services such as debit card access, bill pay, and check writing. 
• Checking accounts may earn interest at a variable rate, usually with lower yields relative to other options.. 
• If offered by an FDIC-insured bank, deposits are eligible for FDIC insurance up to $250,000 per depositor, per ownership category. 

Savings accounts 

• Savings accounts are non-maturity accounts designed to provide customers with the ability to hold liquid assets to save while generally earning higher yields relative to checking accounts.  
• Savings accounts can vary across institutions in yield offerings, including high-yield and tiered rates.  
• These accounts may limit withdrawals, and banks reserve the right to require seven days' notice prior to withdrawal. 
• If offered by an FDIC-insured bank, deposits are eligible for FDIC insurance up to $250,000 per depositor, per ownership category. 

Certificates of Deposits (CDs) and Term Deposits (TDs) 

• CDs and TDs are types of maturity accounts designed to provide customers the ability to hold liquid assets for a specified period of time, generally to earn higher yields relative to non-maturity accounts. 
• The maturity of these accounts can vary, with yield determined by the length of time the assets will be held at the bank.  
• Some types of maturity accounts offer the ability to withdraw funds prior to maturity, but this may be subject to limits or a penalty fee.  
• If offered by an FDIC-insured bank, deposits are eligible for FDIC insurance up to $250,000 per depositor, per ownership category. 

Brokerage sweep accounts 

• Brokerage accounts provide customers the ability to hold liquid assets for the purpose of investment and securities transactions.  
• Some brokerage accounts offer an overnight sweep feature, which automatically transfers uninvested cash from your brokerage account to a separate account at a bank or to a money market fund each day to earn yield.  
• Some brokerage accounts also offer clients payment service capabilities such as debit card access, check writing, and bill pay. 
• Assets placed in brokerage accounts may be eligible for coverage by the Securities Investor Protection Corporation (SIPC), which protects investors when a SIPC-member brokerage firm fails.  Should a failure occur, SIPC protects the assets in customer brokerage accounts of the member firm up to $500,000, including up to $250,000 in cash. 
• If cash is swept to or otherwise placed at an FDIC-insured bank, deposits are eligible for pass-through FDIC insurance up to $250,000 per depositor, per ownership category.  Certain conditions must be satisfied for FDIC pass-through insurance to apply. 

Money Market Funds (MMFs) 

• MMFs are mutual funds that invest in short-term debt securities. They are designed, but not guaranteed, to maintain a stable price and pay steady returns by passing on earned interest payments, minus any fees.  
• MMFs can invest in various types of securities (e.g., treasury bills, government agency bonds, or corporate commercial paper), and risks may vary based on the type of securities that the fund invests in. 
• MMFs are subject to investment risks, including the potential loss of the principal amount invested.  Risk can vary based on the particulars of the fund. 
• If MMFs are held at a SIPC-member brokerage firm, they may be eligible for SIPC protection as described above. 

Treasury bills  

• Treasury bills are short-term debt instruments issued by the U.S. government. 
• The rate of return for a treasury bill may be fixed or variable during the life of the bond. The rates offered by treasury bills may be lower than the rates for other short-term investment options. 
• Treasury bills have various maturity dates, typically ranging from 4 to 52 weeks. 
• Treasury bills can be sold at any time, although you may forfeit some returns if you sell before the maturity date. If the price of your bond falls, a sale of that bond will be at a loss. 
• Treasury bills are not insured by the FDIC or SIPC, but are backed by the full faith and credit of the U.S. government. 

Next steps 
Thinking about the variety of cash management strategies can help you generate higher potential returns on your cash, lower overall portfolio risk, and help ensure your money is available when you need it.

If you are interested in learning more about how you can manage cash more strategically in your portfolio, please speak to your Goldman Sachs advisor.