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Cash Equivalents
Cash equivalents are types of investments that can generally be converted into cash relatively quickly, but they typically earn a small amount of interest. The most common examples of cash equivalents are:
- Savings deposits
- Certificates of Deposit (CDs)
- Money market accounts
- Money market mutual funds
Note that CDs typically charge a penalty fee against interest earned for early withdrawals. Savings deposits, money market accounts and money market mutual funds typically allow immediate withdrawals with no penalty fees.
Please note that an investment in a money market mutual fund is not insured by the FDIC or any other government agency. Although these types of funds seek to preserve the value of your investments at $1.00 per share, it is possible to lose money by investing in money market funds.
Why Buy Cash Equivalents
Savers buy them so their money is in a safe place and can be accessed quickly. Investors buy them as a temporary "parking place" for their money while they're deciding what new investments to make.
These articles are not meant to be a financial plan. A financial plan generally addresses a wide spectrum of financial needs including insurance, savings, investments, tax and estate planning.
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