For most of the last 5 years, there’s been no reason to pay much attention to how you kept your cash – it doesn’t make sufficient interest to worry about. That’s about to change.
Back in the 1980s, it made a big difference where you held your money. Bank rate of interest were capped at below the rate of inflation. The money market fund was designed to get around that, meaning that lastly, common individuals (not just the affluent) can get a market interest rate on their short-term money.
Interest rates were high enough that it made a genuine distinction. For much of the first half of the 1980s, it was feasible to get 11 % on your cash – about double exactly what you might get in a cost savings account, and definitely even more than you can get on a bank account (because banks weren’t permitted to pay interest on checking).
With rates that high, people found it worth their while to do rather a bit of micromanaging of their money. They’d rush to get any brand-new money earning interest at the earliest opportunity. They’d shift any spare cash into their cash market fund even if they understood they’d move it to their bank account in just a few days. They’d delay paying their bills until the last feasible moment.
At 11 %, a $1,000 deposit’s going to earn $2.12 each week. Multiply that (and compound it!) over the course of a year, and pretty quickly you’re talking real money.
Before, individuals tried to keep liquidity balances mainly for convenience. If you’d some money sitting in your bank account, it implied you might pay bills when they came, instead of having to wait till you got your income.
After, liquidity balances were a revenue center.
That’s good in a sense. (Revenue!) But it was likewise yet another thing that needed to be managed. It might be really unhandy if you were caught suddenly requiring your cash while it was in the middle of being relocated.
With interest rates so low, we’ve been able to simply ignore this.
That’s what I’ve been doing. I mentioned a couple years ago about how the sneaky bank nearly got me when they increased minimal balances. Without indeed offering it much idea, I simply increased the amount I tried to keep in my account. That’s been fine up until now. The extra interest I could possibly have made by making certain that money earned a leading rate is just a couple of dollars a year. But once rates start to increase, it’s visiting be a various story.
Enjoy the luxury of just trying to keep money anywhere that’s useful – inspecting account, cost savings account, cash market account, and money market fund – without tracking rates. Pretty quickly you’ll have another thing you’ll need to manage.