Jeff Scharf, Janney’s Director of Cash Management and Lending, discusses the different solution options for short-term cash needs, and how to determine which may be the right fit for your specific need.

Are you concerned that you may not have the right amount of cash on hand to cover short-term needs?

To answer this question, there are a number of questions that you may want to take under consideration:

  • How much cash will you need, and when will you need it?
  • Do you need cash immediately to cover bills and other expenses?
  • Is there a surplus that will not be needed for the next 30 days, a few months, or even a year, but you wish to hold in cash?
  • Is a portion of the cash set aside as an emergency fund?
  • Is cash an important part of your overall asset allocation investment strategy?

Whatever your need for cash may be, there are numerous options for holding cash as part of your overall financial picture. 

Immediate need for cash on hand

A bank deposit offers a simple strategy for immediate cash liquidity (for example, securities trading, paying bills, or covering immediate cash outlays). Cash set aside in an Insured Sweep Bank Deposit Program will be FDIC (Federal Deposit Insurance Corporation) insured up to $250,000 per person, per bank. Janney offers a Bank Deposit Program that will automatically sweep any amount in cash (generated from trading, dividends, interest, etc.) into one or more bank deposit programs to insure cash up to $2.5 million per individual and corporation, or $5 million for joint accounts, receives full FDIC-insured coverage. This amount is available for distribution when you need it. 

Short-term need for cash

If you have a cash allocation which you do not need immediately, one option to consider is holding the cash in a money fund. Like bank deposits, there is usually no minimum investment (unless purchased directly from a fund company), no maturity period, or expiration date. Money funds are structured very similar to mutual funds; however, money funds primarily invest in short-term debt securities such as U.S. Treasury bills and commercial paper with maturities of less than one year, and seek to maintain a share price of $1.00. It is important to note that, depending on the urgency of your need, the proceeds from a money fund will not be available immediately (it typically takes one to two business days), and the price at point of sale could potentially decline in value.

Money funds are protected under the Securities Investor Protection Corporation (SIPC) for up to $250,000 in cash per account. Note that FDIC insurance does not cover cash held in money funds. It is important to understand that SIPC does not offer the same protection for your cash that an FDIC insured deposit does, because SIPC does not protect the value of the security such as a money fund.

Emergency Fund

If you are looking to set aside funds for emergency reasons only, with the hope these funds will not be tapped, you may wish to consider government securities such as a Treasury bills(T-Bills) or Certificates of Deposit (CDs), issued by banks or brokerage firms. T-Bills offer a secure way to invest cash for a period of time, while keeping your principal safe and secure. They offer maturities anywhere from three months to one year, depending on your circumstances, and have a minimum investment amount of $1,000. There are no penalties if sold prior to maturity (beyond sales commissions), and you will receive your initial investment and accrued interest. T-bills offer peace of mind knowing that your principal amount is backed by the full faith and promise of the U.S. government.

CDs (issued by banks or brokerage firms) are an option you may want to consider for cash set aside in case of an emergency for a longer period of time, typically exceeding a year or more. Certificates of Deposit provide FDIC insurance coverage for up to $250,000 per individual, per institution.

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

About the author

Jeff Scharf

Director of Cash Management & Lending

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