Eva, 32, lives in Lisbon and keeps all €30,000 of her cash in her current account, at 0%. Her costs are about €2,500 a month, and €15,000 of the cash is for a flat deposit she expects to need in about three years. She knows other accounts exist. Choosing one feels like more work than the loss is worth, and the loss never shows up on a statement.
Cash at 0% loses value you never see
The loss is still real. At 2% inflation, €30,000 at 0% loses about €600 of purchasing power a year: about €3,000 over five years, before counting what the money could have earned. Savings accounts do not always beat inflation either, but they usually narrow the gap.
The Emergency Fund post covered how much cash people hold, and the Cash Flow Forecasting post how that amount meets month-by-month bills. This post is about where the cash sits, and what each choice trades off.
Each pile of cash has one job
The Cash Flow Forecasting post sorted cash by when you might need it. A common structure gives each of those piles one job, and keeps each where that job fits:
| Job | How much | Often kept in |
|---|---|---|
| Spending this month | About one month of costs | A current account |
| Safety buffer | Often three to six months of costs | A high-yield savings account or a money-market fund |
| A goal two to five years away | Sized to the goal | Treasury bills, term deposits or a short-duration bond fund |
Split this way, only Eva’s €2,500 spending money needs to sit at 0%: about €50 a year at 2% inflation, instead of €600, if the rest roughly keeps pace. Her €12,500 buffer and her €15,000 deposit fund each go where their job fits.
Many people treat spending money as not meant to earn much; moving it every month is often not worth the effort. The buffer is touched once or twice a decade, so a day’s delay in reaching it is acceptable to most people, though some keep part of it instantly available. For goal money with a firm date, some people match bills or term deposits to that date so they do not have to sell after a price fall. A short-duration bond fund adds price risk and fits only when the amount or date can move.
Quick check: Eva plans to buy a car in three years. Which job does that money do?
The third: goal money. Because she knows roughly when she needs it, it can sit somewhere slightly less liquid, such as a term deposit or a bill that comes due before then.
Where each kind of cash account fits
These accounts differ in access, protection and price risk; which pays most changes over time:
| Account | Reach the money | Protection | Fits |
|---|---|---|---|
| Current account | Instantly | Deposit protection | Spending |
| High-yield savings account | Instantly or next day | Deposit protection | Buffer |
| Money-market fund | Same or next day | Regulated fund, not deposit protection | Buffer |
| Treasury bills | On the date each comes due | Backed by the government | Goal money |
| Short-duration bond fund | Any trading day, at the day’s price | A fund; its price moves a little | Goal money |
| Term deposit | On the date it ends, or early with a penalty | Deposit protection | Goal money |
The concept travels; the names, limits and tax treatment do not.
How a Treasury bill ladder works
A ladder splits cash across several bills that come due at different times. For example, €12,000 split into four bills of €3,000, coming due in three, six, nine and twelve months. Every three months one bill pays out: you either spend that money or buy a new twelve-month bill with it, so the ladder keeps rolling. Some of the cash is always a few weeks from being available, and nothing has to be sold early. Term deposits can be laddered the same way where buying bills is awkward. In some countries interest on government bills is exempt from some taxes (state income tax in the US, for example).
Each account in more detail
Current account. The everyday account salary lands in. Near-zero interest in most countries, instant access, covered by deposit protection.
High-yield savings account. A bank deposit paying a variable rate close to the central bank’s short-term rate. Its rate usually follows central-bank changes weeks or months later, because banks set it on their own timeline.
Money-market fund. Its yield follows short-term rates almost at once. In some countries it pays noticeably more than savings accounts; where banks compete hard for savings, the two are close.
Short-duration bond fund. Holds bonds that come due within one to three years on average. It can be sold on any trading day and usually settles within one or two business days, but its yield may be above or below comparable bills, and its price moves with interest rates and credit conditions.
Term deposit. A locked rate for a fixed term, usually higher than an instant-access account. Some brokers sell deposits from many banks, which can be laddered like bills.
Chasing yield on an emergency fund rarely pays
The tempting move is to put the buffer wherever the advertised yield is highest. Suppose a short-duration bond fund pays 0.2 points more than a money-market fund. On Eva’s €12,500 buffer, that is €25 a year.
Now rates rise by one point. A fund holding bonds of about two years can lose about 2% of its price: €250, ten years of the extra yield, possibly in the year Eva needs the money. The higher income from the fund’s newer bonds can offset that loss over time, but recovery is not guaranteed by any particular date and may not come before Eva has to sell.
A common test is one question: might you need this money within a year? If yes, many people keep it where the price does not swing. If it is for a goal two to five years away, small price swings may be acceptable, especially when the holding runs to a known date.
What a rate change does to each account
When central banks raise rates, money-market funds and newly issued Treasury bills follow almost at once. Savings rates usually lag by weeks to a few months. Short-duration bond funds usually dip in price. Higher yields can offset that loss over time as the fund rolls into newer bonds, but the price need not recover on any set schedule.
For money held under a year, these differences have little time to build up. For money held for years, many people prefer accounts whose value does not move (savings, accepting the lag) or holdings that run to a set date (a bill or deposit ladder, where a rate change only affects new purchases). Bond funds with longer durations, five years or more, are generally not treated as cash, because their prices can move several percent in a year.
What each account does when rates fall
Money-market and bill yields drop quickly. Savings rates lag on the way down too, so a savings account can briefly pay more than a money-market fund. Bond funds rise in price, longer-duration ones most; a short-duration fund gets a small bonus. When rates are stable, the differences shrink, and the account that pays most on the day you choose tends to keep paying most.
Quick check: rates rise by a point. Which one falls in price, a money-market fund or a short-duration bond fund?
The short-duration bond fund usually falls more. A money-market fund’s yield adjusts within days and its value is designed to be fairly stable, though some funds have a value that varies a little, and no money-market fund has deposit protection.
Where cash plans often go wrong
Spreading cash across too many banks. Six banks each holding €10,000 are hard to keep track of and gain nothing over one or two holding the same total, except where one bank would hold more than the deposit-protection limit.
Forgetting the deposit-protection limit. Protection has a limit per person per bank. Above it, common responses are spreading cash across banks or holding the excess in a money-market fund or government bills.
The limit on deposit protection
In the EU, €100,000 per person per bank under national schemes. In the UK, £120,000 per person per authorised institution under the FSCS (raised from £85,000 in December 2025). In the US, $250,000 per depositor per insured bank. In India, ₹5 lakh per depositor per bank under the DICGC. In Australia, A$250,000 per account holder per bank under the Financial Claims Scheme. In Canada, CAD$100,000 per depositor, per insured category, per member institution under the CDIC. Money-market funds sit outside these schemes; government bills are backed by the government directly. Limits change, and joint accounts or temporary high balances can have special rules, so the local scheme’s own pages are the place to check.
Treating interest as tax-free. Interest from cash held outside a tax-advantaged account is usually taxed as income in many countries, sometimes above an allowance, which lowers the real yield. A tax-advantaged account may shelter the interest, but its contribution, withdrawal and access rules vary widely by account and country. The later post on tax-loss harvesting and asset location covers which holdings sit better on which side.
Chasing sign-up bonuses. A bonus for opening an account is real money, but the rate often drops back after a few months. For people willing to keep switching, bonuses add up; for everyone else, a couple of solid accounts and staying put is the lower-effort path.
What the accounts are called where you live
The three jobs and the kinds of account are the same almost everywhere; the local names differ.
Names in the US, UK, eurozone, India, Australia and Canada
- US. High-yield savings accounts, mostly at online banks; money-market funds through brokerages; Treasury bills bought from the Treasury directly or through a broker; short-duration bond ETFs.
- UK. Instant-access savings and Cash ISAs (tax-advantaged) for the buffer; money-market funds through investment platforms; UK Treasury bills and short-dated gilts.
- Eurozone. Savings rates vary widely by country and bank, more than in the US. Money-market funds are widely available. Short-term government bills, such as Germany’s Bubills and France’s BTFs, work like Treasury bills.
- India. High-interest savings accounts at many banks; liquid mutual funds as the money-market equivalent; Treasury bills through RBI Retail Direct or brokers.
- Australia. High-interest savings accounts and broker cash management accounts are common. Retail investors can buy exchange-traded Australian Government Bonds through an ASX broker; there is no simple retail equivalent of buying short-term Treasury bills directly.
- Canada. High-interest savings accounts, mostly at digital banks; high-interest savings ETFs as a common cash stand-in; government bonds and bills through brokers.
A one-off review, then a yearly check
For many households this is a weekend of work, once: a list of every account and what it pays, and a check of whether any of the buffer sits at 0%. Many people then check once a year and move money only when the gap to a better option has grown to about a percentage point, since switching has its own costs. The next post, on account consolidation, is often what makes that review easy: once every account is in one list, deciding what stays where is simpler.
Which of your piles of cash is sitting somewhere that does not fit its job?