Stashing the cash: Tips on tending to liquid assets

Oct 14, 2011, 9:17 a.m.

In a world where credit is harder to come by, cash is king. And since you never know when an emergency might strike, it's important to have a certain amount of money available at a moment's notice. Having that stash of cash will ease your mind if you find yourself in a crisis or unexpected situation.

While the advice of old might have suggested stuffing your mattress, there are safer ways of keeping cash on hand. Here are a few tips for nurturing your liquid nest egg:

Savings accounts. This tried-and-true method can hold readily available money. Banks and credit unions have FDIC-insured accounts, which will protect your principal and interest from loss. You can access your money directly from the bank, either in person or online, or anywhere in the world with an ATM card.

Money market accounts. Money market accounts are normally offered by most banks. They require a minimum balance and typically pay a higher yield than traditional savings accounts. You can also quickly access your money, if necessary.

Certificate of Deposits (CD). Certificates of Deposits will generate a modest return in today's world of fluctuating interest rates. The good news is that the deposit will normally be backed by FDIC insurance and can be quickly converted to cash. You will pay a penalty if the conversion occurs before the maturity date in the form of some of the interest earned and relative to the amount of time accessed before the maturity date. However, that is a small price to pay for being able to get your hands on cash quickly.

I Bonds. "I" Bonds are issued by the U.S. government. These inflation-indexed savings bonds are sold in denominations ranging from $50 to $10,000. They are free from state and local taxes. You must hold them for 12 months, and they are subject to federal tax. Still, they are a way to get cash relatively quickly.

Municipal bonds. Municipal bonds are issued by state and local governments. They are used to finance infrastructure, schools, and other projects. They are free from federal tax and, if purchased from your home state, normally exempt from state taxes. Be sure to consult with a tax professional before purchasing any bonds.

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