Are You Keeping Too Much Cash In Hand or In The Bank?

Do you ever look at your bank account, see that big number, and feel good about it? A sense of security, maybe even pride? But then comes the nagging thought: “Wait a second… is this actually smart? Am I holding too much cash?”

It’s a question I get all the time. And the truth is, while it feels safe to stack dollars in the bank, inflation and taxes might be eroding that money faster than you realize. Let’s break it down.

Why Cash Feels Good — and Why It Hurts

Seeing a big balance in your savings account feels reassuring. But here’s the problem: when inflation is running hot, your money is shrinking in real time. Even if you’re earning 3.7% in an online savings account, you’ve got to factor in taxes.

If you’re in, say, the 24% federal tax bracket and live in California (with its 9.3% state tax), about a third of that interest is gone before it even hits your pocket. So suddenly that 3.7% becomes closer to 2.4%. Not so great anymore.

Exploring Tax-Deferred Alternatives

So what can you do? One option: multi-year guaranteed annuities (MYGAs).

• They can offer a set interest rate (say, 4.8% on a 2-year product).
• Interest compounds without you getting hit with a 1099 each year.
• At the end of the term, you can roll into another annuity and keep deferring taxes.

Yes, they come with limited liquidity. But many allow up to 10% withdrawal annually. For those with cash just sitting around, this can be a way to earn more without giving it away to Uncle Sam every year.

Balancing Risk With Investments

Maybe you’re thinking, “I don’t want everything tied up in annuities.” Fair. That’s why a balanced approach matters.

• Buying individual stocks? Risky. That’s called single-stock risk.
• Buying a basket of stocks through an index fund or ETF? Smarter.
• ETFs especially are more tax-efficient than mutual funds, which kick out taxable events at year’s end.

Hold ETFs or stocks long enough, and you could benefit from long-term capital gains rates — much more favorable than ordinary income taxes. Plus, if you pass assets to your heirs, they might even receive a step-up in cost basis, eliminating taxes on past gains.

Real Estate, Emergency Funds, and Planning Ahead

In my own family, we even look at real estate as a tool. My wife recently explored a triplex near the ocean. Sure, the numbers didn’t look great month to month, but the appreciation potential and tax write-offs made it worthwhile in the long run.

But remember, cash still has a place. You do need an emergency fund — typically six to eight months of expenses, maybe more if you’ve got rental properties or major home remodels on the horizon.

Don’t Go It Alone

Here’s the kicker: how much cash is “too much” depends on your goals. That’s why working with a fiduciary — especially one who understands federal benefits if you’re a federal employee — can make all the difference.

And if you don’t talk to me, talk to someone. Because here’s the truth: millionaires didn’t become millionaires by leaving their money in a savings account.

Other Smart Ways to Put Cash to Work

• Roth IRA contributions: If you’re 50 or older, you can fund $8,000 each year (per person). Even non-working spouses can fund via the spousal provision.
• Roth TSPs and Roth 401(k)s: Contributions grow and compound tax-free for life — for you, your spouse, and even your heirs.

That’s one of the most powerful wealth-building moves available, and if you’re not taking advantage of it, you’re leaving opportunity on the table.

The Bottom Line

Cash feels safe. But too much of it? That’s where you risk losing ground. The real key is balance — keeping enough liquidity for emergencies while putting the rest to work in tax-efficient, growth-oriented strategies.

Remember: You don’t have to work longer. You just need a better plan.

Advisory services are offered through CD Financial LLC dba CD Financial, an Investment Advisor in the State of California. Insurance products and services are offered through CD Financial & Insurance Services LLC, an affiliated company.
Opinions expressed herein are solely those of CD Financial and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation.