In addition to passport accounts, checking accounts, money market accounts, and certificates of deposit, there are other good places to keep excess cash. If you are in the position where you have some cash that you need to keep in a safe place, there are many alternatives to these aforementioned vehicles for your cash. When choosing a place for your money, you’ll want to consider your particular needs and your tolerance for accessibility, liquidity, gains, and penalties.
USgovernment bills or notes: These investments are also called “treasures” and are guaranteed by the full faith and credit of the United States government. Bills mature in less than a year, Treasury notes meet their term between two and 10 years. Advantages include the fact that these bills and notes are exempt from state and local taxes, are considered extremely safe, and can be purchased direct to avoid commissions. If you need your money back before the promissory note or invoice is due, you will face penalties.
Bonds I: These bonds are inflation-indexed savings bonds issued by the United States government. The amount of an I country bond is adjusted semi-annually to keep up with inflation and protect the purchasing power of your money. These bonds are backed by the full faith and credit of the government and protect your investment against inflation. Denominations range from $50 to $10,000. Earnings are exempt from state and local taxes and federal taxes can be deferred for 30 years or all together if used for college expenses. You can only access your bonus early if you have had it for at least 1 year and in addition you will have to pay a penalty of 3 months of earnings if you have not had it for five years.
municipal bonds: Munis are set up by state and local governments to build infrastructure for the public good. These types of investments are popular with high-income individuals who want tax-friendly (usually exempt) income. The negative aspects of municipal bonds are that the interest rates are quite low and you also have to pay a commission to buy them. There are also penalties if you collect before the deadline.
corporate bonds: Corporate bonds are debt issued by a wide range of companies, from blue chip companies to smaller companies. The more creditworthy the business, the less you will pay in interest; there is not that much risk. Only short-term bonds are a good option for your short-term savings.
Bonus Funds: A bond fund is a mutual fund that pools investors’ money to buy a variety of different bonds. On the plus side, bond funds are an efficient way to buy bonds in small increments and diversify to minimize risk. However, the share price of bond funds can fluctuate and you may lose part of your original investment. Other disadvantages include the fact that you have to pay fees to buy and own the fund (rates and expense ratios).