Two alternatives with cash
There are two alternatives with cash:
1) It can be placed on deposit at the bank or even in “certificates of deposit”.
- This offers the lowest potential return when compared with the other types of classical assets such as stocks, bonds, ETF’s & funds.
- Generally, the longer term of cash investment the higher return can be paid.
- It has the lowest risk which can help investors to achieve their short term goals.
- Depending on the nature of the account it can be quite liquid and easily accessible. However, it may be impossible to withdraw or an early surrender fee will apply if encashed before the end of the fixed term.
- It pays a fixed income, depending on the term, which gives a bonus uplift of interest over the current bank base rate.
- The terms of the investment are optional and can be chosen at the start of the deposit.
- If the interest rate the investor receives is lower than the inflation rate, then the value of the money will be lost in terms of spending power.
2) It can be kept in an original way, people have done with cash for thousands of years – cash cash. It can be stored at home in a safe or placed in a current account with the bank.
- Keeping money in cash at home can be quite dangerous.
- The current accounts are normally very flexible and there is no lack to access the money.
- There is no interest paid so the money will be losing value all the time.
- Cash should be considered as a ‘defensive’ asset that can be used for emergency needs and for regular expenditures & cash flow!