CASH INVESTMENTS AND SAVINGS ACCOUNTS
Essential information

What are cash investments?

Cash investments generally produce lower but more secure returns. Generally, cash investments are considered the foundational link in the investment chain. As their name implies, cash investments are easily cashed in with small, if any, penalties for early withdrawal. Examples of cash investments include money market funds, bank accounts and certificates of deposit (CDs).

Cash investments are considered excellent investments for investors who have low risk tolerance and are looking to make guaranteed but lower returns with little risk or no risk to their initial investment.

Advantages of cash investments

• Ease of access – cash investments offer low-risk yield and high liquidity

Disadvantages of cash investments

• Low interest rate – if high rates are offered, they are usually for a short period of time only

The following is a list of cash investments in order of risk, lowest risk first.

Checking and savings accounts
The standard cheque account and humble savings account are the fundamentals of cash investing. Both these offer a guarantee on the principal amount in return for a low interest rate.

Money market mutual funds
These investment funds specialise in earning investors money in short-term debt instruments. They are considered one of the safer ways to invest cash, although not as safe as checking or savings accounts.

Certificates of Deposit (CDs)
These type of investments are certificates issued by banks and other financial organisations to cover their short-term financial commitments. Usually, they are available for terms of up to five years. Certificates of Deposit can take more than 6 months to mature and therefore should be considered a long-term investment rather than a cash investment.

Government Stocks (UK) or Treasury Bills (US)
Government stocks or Treasury Bills are financial instruments issued for 52 weeks or less, purchased at a discount rate. For example, you might pay $1,800 for a $2,100 Treasury Bill, getting $2,100 back and making a $300 profit when the Treasury Bill matures.

Government Savings Bonds
Government Savings Bonds are considered one of the most popular forms of cash investing. Savings Bonds have varying values and maturing periods. The maturing periods can vary from a few months to several years. The initial investment is repaid that the point of maturity together with the interest due stated at the outset.

Annuities and Life Insurance Policies
Annuities and Life Insurance Policies popular forms of cash investments. On maturity, these policies release the initial sum assured plus any increase in value. You can also invest in life insurance, getting a policy loan to access the value of the equity that you've built up in the insurance policy.

Other relevant articles:

>>>Stocks, shares and other securities
>>>Investing in bonds
>>>Investing in unit trusts
>>>Cash investments - savings accounts
>>>Premium bonds
>>>Investing in property
>>>Alternative investments

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