THE STEADY STAPLES OF A WELL-BALANCED PORTFOLIO
Generally, cash investments are short-term, interest-bearing secu- rities that offer investors the opportunity to collect a specified interest rate, keep a high level of security and maintain liquidity with their money. The most commonly used cash investments are bank savings accounts, certificates of deposits (CDs), and money market funds. Some employer-sponsored retirement plans may offer guaranteed investment contracts, which are another form of cash investments.
Cash investments are best used for emergency funds. This is money you want to have some return on, but if you needed it, you could have it in hand very quickly. This may also be money that you would like to invest in the near future, but haven’t quite decided which investments are right for you. Because these investments are highly liquid, they tend to offer lower returns than other investments might. Most of these investments also don’t have any surrender charges for withdrawing the money.
The Federal Deposit Insurance Corporation insures passbook accounts, money market deposit accounts, and CDs that are issued by its member banks and savings and loan institutions up to a maximum of $100,000. For cash investments offered by credit unions, there is a federal deposit insurance agency that differs from the FDIC.
Any interest earned on savings accounts or money market deposit accounts is fully taxable for federal income tax purposes.
Savings Accounts Savings accounts, or passbook accounts, are found at any bank, credit union, or savings and loan institution. Because they are extremely liq- uid, they are characterized as having extremely low interest rates. Pass- book accounts also tend not to have check-writing privileges. Most banks also offer interest-bearing checking accounts. However, the interest on these accounts tends to be less than that on savings accounts and there may be quite high minimum balances required in order to qualify to receive interest. Any interest received on either a savings account or a checking account is taxed as ordinary income.
Money Market Deposit Accounts Money market deposit accounts, which differ from money market mutual funds, typically offer a higher rate of interest than a savings