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Hi Reader,

Today, I want to share a quick planning note on the topic of holding cash.

We all know it's important to keep some cash on hand for emergencies, but how much should you keep in savings?

How much cash is too much if there is such a thing?

And what can you do to earn more interest in today's world?

But first,

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Since most clients generally excel at accumulating assets, it makes sense that these are three of the most popular recurring questions I hear across all client relationships.

Let's tackle the "how much" question first. As much as I may like to provide a concrete answer, you won't be surprised to hear that the answer is, "It depends."

Many factors go into determining how much cash someone should hold. A few of the primary considerations include:

• How much your monthly expenses are.
• What percentage of those expenses are essential versus discretionary.
• How reliable your income streams are.
• What percentage of your expenses those incomes cover.

There are other factors to consider, but here is what might be most interesting and why we consistently answer, "It depends."

Even if your answers above were miraculously identical to somebody else, the appropriate amount to hold in cash for you would probably still be different than that of the other person.

Because you may prefer more cash on hand for "mental comfort."

Or you may prefer less because you want as much money as possible "working for you."

Obviously, everyone is different, and so is the amount of cash someone should hold. The only thing I can be sure of is that everyone should keep some cash on hand as a cushion for the unexpected.

That said, if your cash pile has built up over the last couple of years, as it has for many people, and you want to revisit the "right amount" for you, let me know.

Now, how might you earn a little more interest on your savings?

While I'll admit that the point of having cash on hand isn't necessarily to earn a return on the money.

It's being prepared for the unexpected.

Many people are forgoing significant interest due to nothing other than inertia.

In fact, Bankrate recently noted that, despite the current Fed Funds rate being above 5%, almost half of all savers either don't know how much interest they're earning or are earning less than 1%.

The reason is that most traditional brick-and-mortar banks have continued to pay paltry interest rates, with the average across all banks being 0.47% and many of the biggest banks still paying just 0.01%. That's tough.

Despite having raised this issue in the past, I know many of you have continued with your traditional banking relationships despite there now being a real financial incentive to make a change.

If that's you, it's worth asking the question,

"How much is this inertia costing you?"

It's a straightforward calculation. Suppose you keep about $50,000 in your traditional bank, paying close to 0%. If this is the case, you'll earn close to $0 in interest, but if you kept those same funds in a bank paying 4% (which is common with many online banks), you could earn an additional $2,000 annually.

Depending on the level of cash you keep in savings, the interest you are forgoing could be more or less. For what it's worth, I know it's much more for some of you, given the cash you keep in savings.

So, while I'm not trying to convince you to go through the trouble of changing banks, I do feel a responsibility to point out what it might be costing you in foregone interest if the bank you're with is offering poor rates like those noted above.

Obviously, it's your choice, but if you're interested in exploring other options, I'm happy to chat anytime.

Then, hit reply to this email with any questions. I read and respond to every message. 😃

Keeping Retirement Simple,

Eric Blake, CFP®

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