Cash Management

Understanding Everyday Cash vs. Strategic Cash Allocation

When managing personal finances, it’s crucial to differentiate between everyday use cash and strategic cash allocation. Both play essential roles in a well-rounded financial plan but serve distinct purposes.

Everyday Use Cash

Everyday use cash refers to the funds you keep readily accessible for routine expenses. This includes cash in your wallet, funds in your checking account. This cash is essential for covering monthly bills, wiring to your bank account or other immediate needs. Its primary characteristics are:

  • Liquidity: Easily accessible without penalty or delay.
  • Stability: Low risk of loss, though it earns minimal interest.
  • Convenience: Enables quick transactions and immediate access.

The main goal of everyday use cash is to ensure you have enough liquidity to manage day-to-day financial obligations without needing to liquidate investments or use credit.

Everyday Access Solutions: Purchase investments, pay bills and manage daily expenses.

Cash Sweep Program

Bank Sweep Feature and Secondary Sweep Feature
Description: A program that allocates across FDIC insured program banks and automatically invests into the Secondary Sweep Feature once the Insured Deposit Program maximum threshold is crossed.
Offered through: Benjamin F. Edwards and BNY Mellon/Pershing
Current rate/yield: See Rate Disclosure Page

FDIC insurance or SIPC protection: This program “sweeps” cash from your Benjamin F. Edwards account into program banks, with each bank providing FDIC insurance up to $250,000 for single ownership and $500,000 for multiple owners, allowing you to have combined FDIC insurance up to $2.5 million and $5 million for a multiple-owner account.

Any Cash Sweep Program balances over the FDIC thresholds will overflow into the excess sweep option, which is insured by SIPC and excess SIPC.
Features and other information: Cash is deposited into interest-bearing program banks and pays interest on cash awaiting investment or distribution.

Strategic Cash Allocation

Strategic cash allocation involves placing your funds into financial instruments or accounts designed for specific financial goals or risk management. This could include cash alternatives like money market funds, certificates of deposit (CDs), or even short-term bonds. The primary objectives of strategic cash allocation are:

  • Optimization: Seeking higher returns or better interest rates compared to traditional savings accounts.
  • Goal-Based: Aligning funds with short- to medium-term financial goals, such as saving for a down payment on a house or building an emergency fund.
  • Risk Management: Balancing risk by diversifying cash holdings across different low-risk, interest-bearing options.

Strategic cash allocation requires careful planning to balance liquidity needs with the potential for higher returns. This involves understanding your risk tolerance, investment horizon, and financial goals to choose the right mix of cash alternatives.

Certificates of Deposit (CDs)
Description: Consider using FDIC-insured CDs in your account to earn income while also helping achieve principal preservation goals.
Offered through: Benjamin F. Edwards
Current rate/yield: Varies, speak with your Financial Advisor
FDIC insurance or SIPC protection: Standard FDIC of $250,000 per issuer, per depositor

Features and other information: Benjamin F. Edwards through the BNY Trading desk offer various brokered CDs for the terms and maturities of your cashflow needs.

Brokered CDs can be liquidated in the secondary market prior to maturity at prevailing market prices.

Money Market Funds
Description: Money market mutual funds invest in short term fixed income securities and pass returns on to shareholders. In addition to generally higher yields, money market funds seek to provide stable asset values, next-day liquidity and an array of investment options.
Offered through: Benjamin F. Edwards
Current rate/yield: Varies, speak with your Financial Advisor
FDIC insurance or SIPC protection: SIPC and Excess SIPC

Features and other information: Offer low expenses, attractive yield and next-day access to your funds.

Variety of investment strategies including government, retail prime and retail federally tax-exempt funds.

Short Term Fixed Income
Description: Range of investment choices including but not limited to brokered FDIC-insured CDs, Treasuries, short-term corporate and municipal bonds that provide various yields and maturities.
Offered through: Benjamin F. Edwards
Current rate/yield: Varies, speak with your Financial Advisor
FDIC insurance or SIPC protection: Varies based on investments
Features and other information: Individual bonds allow for a custom strategy among many product types to meet your goals.

In Summary

Everyday use cash ensures that you have immediate access to funds for daily expenses, prioritizing liquidity and convenience. In contrast, strategic cash allocation focuses on optimizing returns and managing financial goals, often involving investments or accounts with varying levels of interest and risk.

By effectively managing both types of cash, you can maintain financial stability and work towards achieving your long-term financial objectives.