Where to Keep Your Cash for the Highest Return

**Chris Hutchins** (0:00)
The difference between the best and worst place to put your cash can cost you thousands or even tens of thousands of dollars a year. And even if you think you've got a good setup, because I know I did, after going deep on almost a hundred different accounts, products, banks, brokerages and funds, I found I was leaving real money on the table in my own setup. So today, I'm gonna dig into why even the top high-yield savings accounts can still lose, the bank and brokerage bonuses that quietly push some pretty unlikely options to the top of the list, and ultimately, how to land on the right move for your money, whether you're working with $10,000 or a few million, and whether you're in the top tax bracket in a state like California or paying no state taxes at all. I'm Chris Hutchins. If you enjoy this episode, leave a comment or share it with a friend. And if you wanna keep upgrading your money, Points & Life, click follow or subscribe.
Okay, so the reason this episode is coming up right now is that for a handful of years, I worked at Wealthfront, and fortunately, Wealthfront got to a point where they went public a few months ago in December, and the lockup finally expired. And while the IPO performance wasn't what I had hoped, I do have some cash, some of it which needs to be paid to the IRS, and some of it which I need to figure out what to do with. And so thinking about where to put this cash, especially the cash that I need to pay the IRS, you know, by the end of the year, or maybe some of it in April, I've really been thinking about where cash needs to go. And historically, I've had cash sitting around for regular everyday expenses. I like to keep a little bit of an emergency fund just in case we need cash.
Sometimes things happen and you forget that you need cash on hand for something, whether it's a renovation, whether it's a tuition bill that's due. It's always nice, in my opinion, especially when certain things can't always be easily or cheaply paid by a credit card, to keep just some amount of cash on hand. When you run a business, there's oftentimes where you need to make estimated tax payments. Or even if you're running payroll, you want to make sure you have cash on hand to make payroll or retirement contributions. And so I always like to keep some amount of cash on hand. For each person, that amount is going to be different. For some people, it might be one or two months of spending. For some, it might be six to 12
For some, the way you feel about the market right now might change that amount. But whatever it is, whenever I have money that's sitting in cash that's not invested in the market, the goal is for it to earn the most amount possible. But it's not just the most amount possible. It's the most amount possible that both fits the liquidity constraints. Because if I could tell you there's a way to earn a ton of money, but you can't touch that money if you need it, that might not be an option.
But it's also to earn the most amount possible in the easiest way. And by the time we're done with this episode, you'll understand that there are ways to eke out a little bit of extra, but it takes a lot of work. And it's up to you to determine whether that extra work is actually worth it. So that's how I think about cash. When it comes to just investing the money in the market, the primary reason I don't consider the stock market a place for cash is that on any given day, you can see a swing of plus and minus 1%, 5%.
And historically, we've had days where the market's gone down 20 or 30%.
So if you need money, and you're going to need that money accessible to you in the near term, I don't like to keep that money in the market. The market for me is for money that I'm not going to need to touch for at least five years. And so that's why I'm thinking today, this is the day not to talk about the stock market, not to think about long term investing, but to think about where to put your cash. And this is not just relevant because of my situation, but there have been a lot of changes recently. There have been a lot of big brokerage matches in the past few years, and cash matches where it's move your money here, get one, two, 3%, those are dead. The Fed was expected for a long time to start lowering interest rates. I remember that that was everyone's expectation, that interest rates are going to the ground, and that hasn't happened. And if you look at the FedWatch tool, and you look at the odds people give, or you look at Polymarket or Cal-She, it looks like rate hikes are probably more in our future than rate drops. And there are a handful of new offers, and one in particular that I think really set itself aside as one of the best places to put cash. I also think one big important thing to consider is if you search online for best high-yield savings account, best interest on cash, you will find just an incredibly large number of affiliate managed sites on places like NerdWallet and BankRate, where you will see a bunch of options. And those options aren't misleading, but they often don't have all the options, and they might be framed or scoped to a very specific type of account. I remember when we were at Wealthfront, we'd built the cash account, and we were trying to get it listed as the best high-yield savings account. But Wealthfront is not a bank, and that account is not legally a savings account because it is technically an account that sweeps to other savings accounts. Sure, it has more FDIC insurance than the average savings account, but for whatever reason, it wouldn't be allowed to be in that list, even though functionally, it was very, very, very similar. So today, I'm not going to focus on one list. I'm going to focus on all the places you can put your cash that offer you the kinds of liquidity you get with cash, where you can take your money out and access it as soon as you need it, and focus on how they compare, how they differ, and where you can get the most, because it's not where my money was sitting before I started researching this episode. So, let's first talk about the most important thing here, which is I am not going to frame everything in the form of what is the rate you will get, because your after-tax rate is really much more relevant, because the tax treatment of all of these different products is very different. Why is that? Well, there are some products like Treasury interest, T-bills, and ETFs that invest in Treasuries, that skip state tax entirely. For someone in a state like California, that could be 13.3% head start. That's really, really valuable. 13.3% off of something like a 4% return is a really significant amount of money and could really have an impact on your yield. But one thing important to understand here is that that exemption only matters if a fund qualifies. And so certain funds have qualified or not qualified because they don't meet the mark of having a majority of their assets in things that are considered zero to state tax on. And notably, one Fidelity fund, SPAXX, failed that test recently. And so those changes are important because you might be thinking that where you're putting your money has that tax edge and it might not. Now, fortunately, in Fidelity's cash management accounts, we'll talk about this later, there are other options, but they can't actually be your core position. So I'll explain that distinction later, but that's just something to keep in mind, is that the taxes on these accounts matter. And so I want to look at this on an after tax basis, not just state taxes. One other interesting thing is there's a unique account offered by Basque Bank called the Basque Mileage Account, and they pay their interest, quote unquote, in the form of American Airlines miles.