Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Cash is king, right?
Well, not always. Sometimes, you can have so much cash sitting around in your bank account that it turns into a wealth-devouring demon.
Top Picks
-
Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one
-
A single line on your car insurance policy could be inflating your premium by up to 30% — here’s what to change
Gold has overtaken U.S. Treasuries as central banks’ top reserve asset. Get Priority Gold’s 2026 Precious Metals IRA Playbook for free
On average, American families had an average of $62,900 in their transaction accounts, according to the Federal Reserve’s 2026 Survey of Consumer Finances (1). These include common account types like checking and savings accounts, but also money market accounts, cash accounts at brokerages and prepaid debit cards.
Even so, for most people that balance is probably higher than it should be.
The key culprit for burning through that balance? Weak interest rates on your liquid cash coupled with sticky inflation.
As far back as 1977, legendary investor Warren Buffett warned of the devastation that inflation can wreak on your money for decades (2).
“The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures,” Buffett explained in an interview with Fortune*.* “The inflation tax has a fantastic ability to simply consume capital.”
“If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner,” he added.
Is Buffett still correct? Here’s why keeping too much cash on hand could be a serious mistake and a significant drag on your financial health.
The ‘inflation tax’
As of September 2026, the average national deposit rate on a checking account is just 0.07%, according to the Federal Deposit Insurance Corporation (FDIC) (3).
That’s nowhere near enough interest to offset the rising cost of living.
Inflation was up 3.7% before seasonal adjustments over the past year, according to the September Consumer Price Index report by the U.S. Bureau of Labor Statistics (4). That means the average checking account is earning approximately 60 times less than the rate of inflation.
But inflation isn’t the only problem. Idle cash also carries opportunity cost — the money you leave on the table when you don’t invest in assets that can generate income or growth.
How much cash should you keep?
Cash remains your best source of emergency funds. If you suddenly lose your job, face an unexpected medical bill or need a quick repair on your car, it’s always a good idea to have access to at least some of your wealth.
Most financial advisors suggest keeping an emergency fund worth three to six months of essential living expenses (5). But that number can be as high as three to five years worth of living expenses if you’re a retiree, according to personal finance expert Suze Orman (6).
To find your target, you can total up what you spend on necessities in an average month, then multiply accordingly.
Park your cash in a high-yield account
Once you’ve done the math, a high-yield account like a Wealthfront Cash Account can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.
A Wealthfront Cash Account currently offers a base rate APY of 3.55% through program banks. With a new client boost and direct deposit incentive, referred clients can earn up to a 4.55% APY.
That’s 10 times the national deposit savings rate, according to the FDIC’s September report.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8M FDIC Insurance eligibility through program banks.
What to do with the excess
To fight inflation, consider moving some of your money into short- or medium-term securities with higher yields.
For example, Vanguard’s Federal Money Market Fund (VMFXX) offered a 3.81% yield as of Oct. 13 (7). Although that’s still below the rate of inflation, it’s a lot better than 0.07%.
If you’re more concerned about opportunity cost, you might look into a low-cost index fund with higher risk – but also the potential for higher returns. Vanguard’s S&P 500 ETF (VOO) has delivered a compounded annual growth rate of 14.94% since its 2010 debut (8).
While past performance doesn’t guarantee future returns, the point stands: Keeping cash idle means missing out on growth potential.
Automate your investments
You can easily invest in assets like VOO when you use platforms such as Acorns, an app that automatically invests your spare change, so you don’t have to.
Signing up takes just minutes: Simply link your cards, and Acorns will round up each purchase to the nearest dollar, investing the difference into a diversified portfolio managed by experts at leading investment firms like Vanguard and BlackRock.
That morning coffee for $3.25? It’s now a 75-cent investment in your future.
With Acorns, you can invest in a dividend ETF with as little as $5 — and, if you sign up today, Acorns will add a $20 bonus to help you begin your investment journey. All you have to do is set up a small recurring monthly contribution to snag the bonus.
Diversify beyond stocks
Another option for preserving your wealth is gold, which has long been considered an inflation-resistant investment.
The thinking goes like this: Unlike fiat currency, gold can’t be printed at will and has an inherently limited supply, meaning that investors often buy gold during periods of high inflation. In turn, this can increase demand and drive up the spot price.
If you’re looking for a way to add gold to your retirement portfolio, opening a gold IRA with the help of Goldco allows you to invest in gold and other precious metals in physical forms while also providing the significant tax advantages of an IRA.
With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.
For investors who are curious whether this is the right investment, you can download your free gold and silver information guide today. Just keep in mind that gold is often best used as one part of a well-diversified portfolio.
Make your cash work for you behind the scenes
Your cash doesn’t have to sit on the sidelines indefinitely if some of it could be working toward your long-term financial goals. Real estate could be one option, as rental properties typically offer a source of income that tends to rise alongside inflation.
Even better, you no longer need to have a sizable downpayment ready or take on monthly mortgage payments in order to get started.
Platforms like Arrived can help you buy fractional shares of vacation homes or rental properties.
Backed by world-class investors, including Jeff Bezos, Arrived lets you get into SEC-qualified investments in real estate, including rental homes, vacation rentals and diversified funds.
In addition to any property appreciation, Arrived’s properties can help you earn a passive income stream without any of the extra work that comes with being a landlord. No midnight maintenance calls over burst pipes required.
All you have to do is sign up, then you can view a selection of vetted properties and start investing with just $100. That way, you can make sure the platform is right for you.
And, for a limited time, investors can get a 2% account match when opening an account and adding $2,000 or more.
Diversify your portfolio with multifamily real estate
Those with more capital on hand can explore other options like multifamily real estate. The advantage of investing in multifamily real estate — which includes anything from duplexes or triplexes all the way up to apartment buildings — is that they can offer multiple income streams from a single asset, arguably making them a more resilient investment.
In fact, Al Brooks, the vice chair of Commercial Banking at JPMorgan Chase, said that “I think multifamily housing is absolutely where you want to be as an investor,” according to a 2025 report prepared by JPMorgan and Moody’s Analytics (9).
Accredited investors can now tap into this opportunity through platforms such as Lightstone DIRECT, which gives accredited investors access to single-asset multifamily and industrial deals.
Lightstone DIRECT’s direct-to-investor model ensures a high degree of alignment between individual investors and a vertically-integrated, institutional owner-operator — a sophisticated and streamlined option for individual investors looking to diversify into private-market real estate.
With Lightstone DIRECT, accredited individuals can access the same multifamily and industrial assets Lightstone pursues with its own capital, with minimum investments starting at $100,000.
Double-check with an expert
Finding ways to make your cash work harder is one thing. Figuring out how those investments fit into your overall financial future is another. The right balance depends on several factors, including your age, income stability, existing debt and emergency fund, as well as how soon you’ll need the money.
That’s where a financial advisor may help. A professional can review your broader financial picture and help you build a strategy that meets your long-term goals.
Platforms like Advisor.com can connect you with a financial professional who can tailor a strategy to your goals.
Here’s how it works: Enter a few details about your finances, and Advisor.com’s AI-powered matching tool will comb through its roster and connect you with a qualified expert best-suited for your unique needs. Their network also comprises fiduciaries, meaning they’re legally required to act in your best interests.
Finding the right advisor isn’t always easy — there’s no one-size-fits-all solution. That’s why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they’re the right fit for you.
Bottom line
Even if these moves don’t get you into the top 10% or 5% of American retirees, a well-diversified portfolio and some professional assistance can put you on a better track to genuine wealth in retirement. Of course, none of this means that you have to drain your balance completely. There’s still a healthy amount of cash you might want to keep on hand — especially for when things get tough.
What To Read Next
-
The tax breaks in Trump’s ‘big beautiful bill’ expire after 2028. Here are 4 moves to make before the window closes
-
Dave Ramsey says this 1 indulgent purchase stops Americans from becoming wealthy. Here’s what he recommends instead
-
These are 5 things to buy before you retire in America — especially while Trump is still in the White House
-
American millionaires under 45 hold far less in stocks than older investors — and are betting on these 2 inflation-hedging assets
Get Warren Buffett’s best investing lessons, free. Join 250,000 readers getting Moneywise’s sharpest money reporting every week. Subscribe and we’ll send you our guide to the ideas that built Buffett’s fortune as a welcome gift.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Board of Governors of the Federal Reserve System (1); Fortune (2); Federal Deposit Insurance Corporation (3); U.S. Bureau of Labor Statistics (4); AARP (5); Suze Orman Media (6); Vanguard (7), (8); JPMorgan Chase (9)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
