How to Invest Cash if Inflation Is 3%: Smart Moves Now

The costly mistake: letting cash sit and quietly lose to 3%

I still see the same #1 error, smart people leaving big balances in low-yield accounts that pay next to nothing while prices creep higher. If inflation runs at 3%, which is roughly where the CPI has hovered at points this year, per BLS releases, every uninvested $10,000 quietly loses about $300 of purchasing power over 12 months. That’s ~$25 a month just evaporating. Stretch it to three years at 3% and the real value slides by roughly $850-$900. It’s sneaky, and it’s avoidable.

And here’s the kicker that bugs me: plenty of banks still pay almost nothing. The FDIC’s national average savings rate sat around 0.47% in September 2025. So if your cash is parked at “Big Bank A” at half a percent while your cost of living climbs near 3%, you’re effectively earning a negative real return of about -2.5% a year. Doesn’t feel defensive, it’s just slow leakage.

Quick pause, I’m not saying empty your checking account and chase yield. Liquidity matters. The goal is cleaner: earn a real (after-inflation) return on the cash that can work harder, while keeping the right amount truly liquid. We’ll keep risk in its lane, not pretend cash is a stock portfolio.

Target: safely outpace ~3% inflation on non-immediate cash without overreaching on risk, think straightforward vehicles, not hero trades.

First, define “cash” by job, not by where it happens to sit:

• Bills due soon (0-30 days): this is checking. Don’t chase yield here. Friction costs and timing errors > any extra basis points.
• Emergencies (3-6 months of expenses, sometimes 9-12 if income is variable): needs same-day or T+1 access. This can live in insured high-yield savings or a conservative government money market. It should not swing in price.
• Near-term goals (3-24 months): down payment, taxes due next April, tuition. This bucket can earn more, short T‑bills, ladders, or top-tier savings, but principal stability and timing win the argument.

Now, circling back to that negative-real-return problem: when yield < inflation, idle cash isn’t “safe,” it’s losing ground in real terms. That’s the mental shift. This year, even with rates off their peak, simple options have often paid well above the FDIC average, while staying liquid. Earlier this year I moved a client’s sleepy 0.3% savings into a government money market in their brokerage; after fees, they were earning north of 4% at the time. No drama, no lockups. That spread, 3.7% over 0.3%, paid their entire homeowners insurance increase. Small changes, big difference.

Where we’re headed next, spoiler I haven’t mentioned the ladder specifics yet, we’ll map each bucket to tools that aim to beat ~3% after inflation expectations without playing interest-rate hero. If you remember one thing from this intro: set cash by purpose, then demand a fair yield for each dollar that doesn’t need to sit in a 0.47% holding pen.

Set your target: real return math and your time horizon

Start with the boring but important identity: real return = nominal yield − inflation. If we’re using a 3% inflation baseline (which is a reasonable working number this year), then the whole point of this exercise is to earn a positive spread over 3%. Sounds obvious. It isn’t, because headline yields can look fine while your after-tax, after-inflation result is barely treading water.

Two quick anchors from this year to ground the math: (1) the FDIC’s weekly national savings rate has hovered around ~0.47% in 2025 (yes, still), and (2) plain-vanilla government money market funds in brokerage accounts have often paid several percentage points more earlier this year. If you’re parked at ~0.5% while using 3% as your inflation yardstick, your real return is roughly -2.5% before taxes. That’s drift, not safety.

Next, segment cash by timing. I over-explain this with clients because it keeps us disciplined when rate headlines whipsaw:

• 0-3 months (true liquidity): rent, payroll, deductibles, the “I need it Tuesday” bucket. Instruments: checking for spend, plus a high-yield savings or a government money market fund for the float. Aim to beat 3% nominal if possible, but prioritize instant access. Policy order: liquidity > safety > yield.
• 3-12 months (near-term cash): known expenses and a bit of cushion. Instruments: 1-6 month Treasury bills rolled as a mini-ladder; short-term Treasury ETFs if you want automation (just mind price wiggles). Here, you can usually pick up incremental yield without taking credit risk.
• 1-3 years (reserve/escrow): bigger planned outlays, or the second-line emergency fund. Instruments: a 6-36 month Treasury ladder, CDs if the bank specials beat Treasuries after taxes, or high-grade ultrashort/short-term bond funds if you accept mild price movement for convenience. Safety still comes before squeezing the last 15 bps.

Now, taxes. Your after-tax yield is what actually fights inflation. Quick, slightly oversimplified example (I’m ignoring state tax nuances for a second, then I’ll add them back): if a taxable fund yields 5.0% and your combined tax bite is 37% (say 32% federal + 5% state), your after-tax yield is ~3.15%. Against 3% inflation, your real after-tax spread is ~0.15%. That’s positive, but barely. Two ways to improve that number without getting cute: (a) use Treasuries in taxable accounts because they’re state tax-exempt (so that 5.0% might net closer to 3.4% after federal-only if you’re in a high-tax state), and (b) use municipal money markets or short munis in high brackets; the tax-equivalent yield can beat taxable options depending on your state and bracket.

Putting it into a plain policy you can actually follow (and tape to your monitor):

1. Liquidity first: size the 0-3 month bucket to sleep-at-night levels. This cash is allowed to earn less if it buys certainty.
2. Safety second: in the 3-36 month buckets, prefer Treasuries, CDs, and government money markets. No heroics, no junky credit chasing.
3. Yield third: inside those safety rails, pick the best after-tax option for your bracket and state. Treasuries for state tax relief, munis if you’re high bracket, taxable funds in IRAs where taxes don’t bite today.

Time horizon ties it all together. If you know you’ll need $50k in 14 months for a remodel, lock that piece in a 12-18 month Treasury/CD and quit watching the Fed. If it’s “sometime in the next 2-3 years,” build a small ladder (6, 12, 18, 24, 30 months) and reinvest as each rung matures. You’ll capture whatever the market pays without guessing rate moves.

Personal note: I kept a client’s tax bill down this spring by swapping a taxable short-term fund into a Treasury ladder in their brokerage. Same duration, cleaner after-tax yield. Not magic, just aligning instrument to the tax box.

One last caveat since I might be oversimplifying: yields shift, and your tax picture can change with bonuses, RSUs, or a move. Recheck the math quarterly. But the core stays the same, aim for a positive spread over 3%, segment by timing, and follow the simple policy: liquidity, safety, yield (in that order).

Near-term cash that still earns: HYSAs, money markets, T‑Bills, and CDs

Cash mechanics didn’t change this year, but the rate sheet did, and that’s where execution makes or loses you basis points. Quick compare, plain English:

• High-yield savings (HYSA): daily liquidity, no term. Rates are set by the bank, so they can lag market moves by weeks. When the Fed nudges, some banks move the same day, others play the “we’ll get to it” game. Insurance matters: FDIC coverage is up to $250,000 per depositor, per insured bank, per ownership category, unchanged since 2010. If you’re over that, split across banks or use a sweep network that spreads deposits. Watch teaser rates and caps; some promo APYs only apply to the first $25k or $100k, then fall off a cliff.
• Money market funds (MMFs): not FDIC-insured. They typically hold T‑Bills and government repos, so they float with short-term rates. Check two things on the fund page: the 7‑day SEC yield (standardized method from the SEC so you can compare apples to apples) and the expense ratio. A 0.40% expense on a 4.8% gross yield quietly taxes your return. Also, don’t confuse SIPC with insurance, SIPC protects custody if the broker fails, not market value.
• Treasury bills: maturities from 4 to 52 weeks, state and local tax exempt. Buy at auction (no markup) or the secondary market (you may see small price/yield slippage). Easy to ladder and roll. Auctions run frequently, 4‑, 8‑, 13‑, 17‑ and 26‑week bills are auctioned weekly, and 52‑week bills every four weeks. For folks in high-tax states, that exemption can push after‑tax yield ahead of bank CDs, even when the headline coupon looks similar.
• CDs: fixed term and rate. Bank CDs allow early withdrawal but with a penalty (often 3-12 months of interest depending on term, always read the sheet). Brokered CDs sit in your brokerage and are tradable, but if you sell before maturity, price moves with rates, you can take a loss. The flip side is you can exit if you really need to, which you can’t always do at a bank without a penalty.

Okay, the part that trips people up: “Which one now?” With inflation hovering near 3% in a lot of personal budgets, the goal is a clean after‑tax yield north of that. HYSA works for bill‑pay cash and the “I might need it Friday” bucket; MMFs and T‑Bills usually pay a bit more for money you touch less. CDs can win if a bank or broker runs a special. But yes, banks can drag their feet when rates move, so be ready to transfer, don’t let convenience skim 50-100 bps off your year.

Practical playbook for Q4:

• For expenses in the next 1-3 months: keep it in HYSA or a government MMF. Daily liquidity beats squeezing the last 0.1%.
• For 3-12 months: build a 3-6 rung T‑Bill or CD ladder (e.g., 1, 2, 3, 4, 5, 6 months). Reinvest each maturity at the new market rate. You average into whatever the curve pays without guessing rate cuts.
• For 12-24 months: extend the ladder out with 9, 12, 15, 18 months using T‑Bills (via notes for >12 months) or CDs if the bank is posting a premium rate. Keep some rungs short in case yields rise again.

One conversational note, since I’ve wrestled with the same choice: I still keep a base in HYSA because life is messy, kids, home stuff, random travel. But for the “not this quarter” pile, I’ve been auto-rolling 13‑ and 26‑week bills. It just removes the temptation to time the Fed announcement cycle. I think the last time I tried to wait for a better auction I missed by 7 bps and felt silly for a month.

Watch the fine print: brokerage sweep rates are frequently far below dedicated MMFs or T‑Bills. I’ve seen sweeps pay a fraction of what the firm’s own government MMF pays the same day. Manually select the fund or buy the bill; don’t assume the default setting is doing you any favors.

Execution tips today: compare the 7‑day SEC yield on a government MMF to the net after‑tax yield on a same‑maturity T‑Bill (remember, no state/local tax on Treasuries). If a CD special beats both after tax, take it, but verify the early‑withdrawal penalty or the secondary price risk if it’s brokered. And, boring but important, respect the FDIC limits: $250,000 per depositor, per bank (rule in place since 2010). If you’re over, spread it. That’s not being cute, that’s just not lighting money on fire.

Beating 3% over multi‑year: TIPS, I Bonds, and short/intermediate bond funds

If the cash won’t be touched for 1-3+ years, you can move past pure “parking” and into stuff that aims for a positive real return, accepting some trade‑offs. This is where inflation‑linked bonds and a bit more duration start to make sense. I’m not trying to be clever here; just stacking the odds over a multi‑year window.

TIPS (Treasury Inflation‑Protected Securities): TIPS tie their principal to CPI‑U, the Bureau of Labor Statistics’ headline consumer price index for all urban consumers. The principal adjusts monthly with a two‑month CPI‑U lag, and you earn the quoted real yield on that rising (or falling) inflation‑adjusted base. Two practical notes:

• Price moves with interest rates. If real yields rise, TIPS prices drop in the interim. If you want certainty, match maturities to your cash need and hold to maturity.
• The Treasury issues 5‑, 10‑, and 30‑year TIPS on a set auction schedule (regular reopenings), so you don’t need to wait ages for access. Earlier this year we saw 5‑year TIPS auction near around 2% real, good context when your hurdle is 3% inflation.

I’ll catch myself saying “real term premium” and then stop, what matters is simple: if your TIPS real yield is ~2% and realized CPI‑U runs near 3%, your nominal return is roughly 5%, keeping purchasing power intact. Taxes matter though: TIPS inflation accretion is taxable annually in taxable accounts (that phantom income sting). IRAs solve that.

I Bonds (Series I Savings Bonds): These are the ultra‑patient person’s friend. No market price risk, rate resets each May and November, and the composite rate = fixed rate (set at purchase) + semiannual inflation factor derived from CPI‑U. Rules from TreasuryDirect that actually matter:

• Purchase limit: $10,000 per person per calendar year electronically, plus up to $5,000 via a federal tax refund.
• 12‑month lockup, no redemptions in the first year. Redeem before five years and you forfeit the last three months of interest.
• Interest is tax‑deferred until redemption and exempt from state and local taxes. That deferral is sneaky‑valuable when you’re comparing to a 3% inflation target.

One caveat I tell clients: you can’t rebalance I Bonds quickly, and account management on TreasuryDirect still feels like 2006. But for inflation certainty with zero NAV volatility, they do exactly what they say on the tin.

Short/intermediate Treasury or core bond funds: If you want daily liquidity and diversification, plain‑vanilla funds work. Short Treasury index funds keep credit risk minimal; core bond funds add high‑quality corporates and MBS. The trade‑off: the NAV moves. If rates pop 100 bps, a 4‑ to 6‑year duration fund can drop around 4-6% on paper. That’s not fun over a week, but over a multi‑year window, yield carries a lot of weight, especially now that starting yields are materially higher than in 2020-2021.

High‑tax brackets: Consider high‑quality municipal funds or muni money markets. Compare the tax‑equivalent yield: TEY = muni yield ÷ (1 − tax rate). If your federal bracket is 37% and a national muni fund yields 3.4%, the TEY is ~5.4%. Against a 3% inflation bogey, that’s attractive. State tax nuances apply, single‑state funds can improve after‑tax math but watch concentration risk.

How this fits a plan:

• Use TIPS or I Bonds when you want inflation certainty and can live with either price swings (TIPS) or access limits (I Bonds).
• Use short/intermediate bond funds when you value liquidity and diversification and don’t need same‑week cash. Reinvestment at higher yields is your friend if rates bump around.

Quick gut‑check: if your real hurdle is 3% inflation, a TIPS ladder near ~2% real plus CPI‑U keeps purchasing power; I Bonds lock inflation with no price risk but limit how much and when; funds give flexibility but swing a bit. Pick the annoyance you’re most okay with.

One last, messy human note: I once waited for a “better” TIPS auction and missed by, what, 8 bps? Maybe 7. Regret isn’t a strategy. Set a policy (ladder quarterly, or buy when real >1.8% for your horizon), then execute without drama.

2025 tactics: squeezing more out of safe cash without getting cute

First, a rate reality check. Short bills follow the Fed. When policy nudges, 3-12 month yields move. Your bank? Not always. A lot of banks lag… on purpose. Verify your current APY today. Don’t assume it updated after the last Fed meeting. As a reminder, FDIC national rate data in 2024 still showed average savings APYs under ~0.5% while online “high‑yield” savings were paying multiple percentage points more. That spread hasn’t magically vanished in 2025, even if the levels wobble with policy. Point is: check, don’t guess.

Rolling ladders that actually work

• Structure a 3-6-9-12 month ladder using T‑Bills or CDs. That means one maturity roughly every quarter.
• Why it helps: if the Fed cuts later this year, near‑end pieces reinvest a little lower, but your further rungs still lock what you grabbed earlier this year. If policy stays sticky, maturities roll into similar or better yields. It’s boring. Good.
• Operationally: set calendar reminders two weeks before each maturity. Decide: roll same term, extend one notch (e.g., 6 → 9), or harvest to cash for a known outlay.
• Small detail that matters: keep bid/ask and auction dates in mind on Bills; on CDs, confirm early withdrawal penalties in dollars, not just “months of interest.”

Tax moves for Q4 (yes, paperwork season is creeping in)

• Harvest losses in bond funds if you still hold a 2022‑vintage position that never fully recovered. Many core and intermediate funds had double‑digit drawdowns in 2022; some are back, some aren’t. Wash‑sale rules apply, so swap to a similar‑but‑not‑substantially‑identical fund for 31 days.
• Match interest income (1099‑INT) with deductions you were going to do anyway. Charitable bunching can offset a bigger income year; retirement contributions where eligible can lower taxable income. Tax law is jurisdiction‑ and year‑specific, check your rules first.
• Keep SALT deduction limits in mind; you may not get a full offset for state taxes, which makes the next point even more valuable.

State tax angle that gets missed

Treasury interest is exempt from state and local income tax in most states. Quick, real‑world math: if you’re in a 9% state bracket, a 5.00% bank CD taxed by the state nets ~4.55% after state tax, while a 4.80% Treasury Bill stays 4.80% for state purposes. That can make a lower‑sticker Treasury beat a higher‑sticker CD after‑tax. I know, it feels backwards, but the paycheck math is the paycheck math.

Don’t stretch for yield. Please.

• Callable notes that dangle an extra 30-50 bps can vanish the second rates move in the issuer’s favor. You keep the hassle, lose the upside.
• Thin‑liquidity or low‑grade paper: that extra half‑percent can disappear in one bad headline or a wide bid/ask. Credit and call risk don’t pay on a schedule.
• Checklist I actually use: is it bullet (no call)? is secondary liquidity decent? is the spread appropriate for its rating and tenor? If any answer is meh, I pass.

Weekly gotchas I’m still seeing

1. People sitting in 0.01% savings because “the bank will adjust it.” It often won’t. That was true last year, and it’s still true this year.
2. Ladders that all mature the same week (not a ladder, that’s a cliff). Stagger them.
3. Ignoring auction settlement timing and ending up with cash drag for 4-5 days. Minor, but it repeats. Settle dates matter.
4. Buying brokered CDs with hefty early withdrawal penalties they’ll never accept, remember, most brokered CDs can’t be redeemed early; you have to sell them at market prices.

Mini sanity check: if your inflation hurdle is ~3%, a 3-12 month ladder clearing something near that, after tax, wins the “sleep at night” contest. You don’t need heroics.

One last human note: I’ve chased an extra 8 bps before. Felt smart for a week, dumb for a quarter. Set a simple policy, verify APY monthly, maintain a rolling ladder, prioritize Treasuries for state tax where it helps, and execute. Rinse, repeat, no drama.

Risk check: what can go wrong when inflation sits near 3%

Risk check: what can go wrong when inflation sits near 3%? When cash looks “safe,” we tend to stop checking it. That’s the mistake. With inflation hovering near 3% this year, the goal is simple: don’t let frictions knock you below your own hurdle rate. Here’s the shortlist of what trips people up and how to blunt it.

• Reinvestment risk: If short rates drift lower, your maturing rungs reset at worse yields. That’s the price of staying short. A 3-12 month Treasury or CD ladder smooths the hit, but it doesn’t eliminate it. You’re trading some yield today for the ability to reprice quarterly. That’s okay, just name it. I’ve had quarters where the back end of my ladder rolled down 40-60 bps faster than I expected; the ladder still beat my old “set-and-forget” single CD because not everything repriced at once.
• Duration risk: Bond funds and longer CDs lose market value if yields rise. Basic math: price moves roughly opposite duration; a 2-year duration fund can drop ~2% on a 1 percentage point rise. That’s not theoretical, it’s bond arithmetic. Match duration to your spending horizon. If the cash is for Q2-Q3 next year, keep effective duration inside 6-9 months, not 3 years. If you need to sell before maturity, that matters a lot.
• Credit and liquidity risk: With a cash sleeve, don’t get cute. Stick with Treasuries, FDIC/NCUA-insured deposits, and high‑quality government money market funds. Insurance limits are still $250,000 per depositor, per bank or credit union, per ownership category (FDIC/NCUA; limit set by law), which is your hard guardrail. Chasing an extra 30-50 bps in sketchy credits can hand you liquidity gaps right when year-end bills hit. Also, some prime money funds can apply liquidity fees under SEC rules adopted in 2023 if weekly liquid assets get stressed, government funds avoid most of that.
• Call risk: Callable CDs and agency bonds can yank away your best coupon the minute rates fall. That’s why the yield looks tempting. Read the call schedule; if the first call date is in 3 months, you’re basically on a floating teaser. Non-callables (or Treasuries) reduce the “gotcha.” You’re gonna want to check the fine print before you pat yourself on the back for that extra yield.
• Inflation surprises: If CPI runs hotter than expected, nominal bonds lose real purchasing power. The 5‑year TIPS breakeven ran around the low‑to‑mid 2% range in 2024 (Fed series T5YIE hovered near ~2.2-2.4% for much of the year), which is a decent compass, not a promise. If you’re genuinely worried about a 3.5-4% patch, TIPS and I Bonds hedge better than nominals. Reminder: TIPS principal adjusts with CPI; I Bonds accrue tax-deferred and have a fixed rate component that’s become meaningful again since last year.

Two real-world anchors, because numbers keep us honest: the Bureau of Labor Statistics reported year-over-year CPI at 3.0% in June 2024 and 3.7% in September 2023. Point being, “about 3%” isn’t a constant, it wiggles. Build a policy that survives wiggles: keep a rolling ladder, match duration to use-date, favor on-balance-sheet guarantees (FDIC/NCUA) and Treasuries for the tax angle, and cap callable exposure unless you’re being clearly paid for the risk.

Quick gut check: if cash is for the next 6-12 months, think T‑Bills/CDs inside one year; if it’s 12-36 months, blend short IG bond funds or 1-2 year notes, with a TIPS sleeve if you’re worried about a CPI flare-up. We’ll get to tax placement in a minute.

Last bit, and I’ll shut up: none of this is perfect. Rates can gap on you into year-end, and settlement timing (I mentioned this earlier) can still rob you of a few days’ interest. That’s fine. The edge comes from being approximately right, consistently, not precisely right once.

Pulling it together: a cash system that actually beats 3%

Alright, this is the “do it in an afternoon, maintain it quarterly” setup. It’s not perfect, because nothing is. It’s designed to stay ahead of that ~3% inflation bogey without stress. And yes, the bogey wiggles, the Bureau of Labor Statistics showed CPI at 3.7% in September 2023 and 3.0% in June 2024. Point is, shoot to consistently clear the bar, not win the Olympics every month.

Map your buckets (simple, repeatable):

• 3-6 months of expenses: High-yield savings accounts or on-balance-sheet money markets (FDIC/NCUA). Keep it boring, liquid, and insured. Reminder: FDIC/NCUA coverage is typically $250,000 per depositor, per bank/credit union, per ownership category. Split across institutions if you’re over the limit.
• Next 6-18 months: A rolling T‑Bill/CD ladder. Example: buy 3-, 6-, 9-, and 12‑month maturities and auto‑roll as they come due. Treasuries are exempt from state/local tax; CDs are not. If your state income tax bites, that exemption matters.
• 1-3 years: Short/intermediate Treasuries (1-3 year notes) with a modest TIPS sleeve if you want inflation protection on that horizon. If you like the structure, I Bonds fit here too, though the purchase cap is $10,000 per person per year electronically (plus up to $5,000 via a tax refund in paper form). They’re tax-deferred until redemption, which is handy.

Quick sanity check: buckets map to time. If you might spend it in 5 months, keep the duration inside 5 months. Don’t stretch for yield and then panic-sell. I’ve done that. Once. Didn’t love it.

Measure what matters (after-tax, after-inflation):

• Ignore headline APYs in isolation. Build a quick sheet: after-tax yield minus expected inflation. Example: if a HYSA pays 4.5% and your combined marginal tax is ~35%, your after-tax is ~2.9%. If you assume 3.0% inflation (BLS June 2024 print), your real return is slightly negative. A 6‑month T‑Bill with similar nominal yield could finish higher after tax for state taxpayers.
• Don’t get cute with day-count gaps. Settlement slippage steals basis points; it’s fine. The discipline wins over the micro-optimizations.

Automate and audit (stay lazy, stay ahead):

• Auto‑roll: At your brokerage, set T‑Bills/notes to auto‑roll at auction. Same for CDs if available. If a bid looks off one week, you can always pause.
• Calendar rate checks: Put a 30‑minute recurring reminder for mid‑quarter (I use Jan 15, Apr 15, Jul 15, Oct 15). Compare HYSA rates, brokered CDs, and auction yields. Nudge funds if there’s a clear winner after tax.
• Quarterly rebalance: Refill the 3-6 month bucket from ladder maturities. Roll the rest forward. If your 1-3 year sleeve grew too large, peel some back into the ladder.

Tax placement quick hits:

• Treasuries: federally taxable, state/local tax‑exempt.
• CDs and bank interest: fully taxable. Weigh that vs your state rate.
• I Bonds: interest deferred until redemption; federal tax only; penalty if redeemed inside 5 years (3 months’ interest).

Bigger picture (cash is step one): Once your cash engine is humming, point the rest of the plan the right way. Line up high‑rate debt payoff schedules, keep retirement contributions on auto‑pilot (capture employer match first), and sanity-check insurance (term life, disability, umbrella) so a random bad week doesn’t torch your compounding. It’s all one system. Cash is just the front gate.

One last human note: this year hasn’t been linear for rates or inflation chatter, and it won’t suddenly become neat in Q4. That’s okay. The bucket map + after‑tax math + quarterly tune‑up is resilient. Be approximately right, repeatedly. That’s the edge.

Frequently Asked Questions

Q: How do I set up my cash buckets so I’m not losing to 3% inflation?

A: Think jobs, not account types. 1) Bills due in 0-30 days: leave in checking. Don’t chase yield here, timing mistakes cost more than basis points. 2) Emergencies (3-6 months of expenses; 9-12 if income’s lumpy): keep in an FDIC/NCUA‑insured high‑yield savings or a conservative government money market fund. It should not swing in price and should settle same day or T+1. 3) Near‑term goals (3-24 months): match maturities to your dates with short T‑bills or a 3-12 month CD/T‑bill ladder. The aim is to beat ~3% inflation without taking equity‑like risk. Practical tips: automate transfers on payday, label each bucket (rent, taxes, tuition), use auto‑roll for T‑bills at a brokerage, and stay under insurance limits. And sanity check: if an account pays around the FDIC national average (0.47% in Sep 2025), that’s a -2.5%ish real return if inflation runs 3%, move that money to a better bucket.

Q: What’s the difference between a high‑yield savings account and a government money market fund for my emergency fund?

A: High‑Yield Savings (HYSA): FDIC/NCUA insurance up to legal limits per depositor per bank; rate can change, but principal is bank‑deposit stable; transfers often ACH 1-3 business days, some offer instant pulls to checking; interest is taxable at federal and state levels. Government Money Market Fund: not FDIC‑insured, but invests in T‑bills/overnight repos backed by U.S. government; targets a stable $1 NAV; typically same‑day or T+1 liquidity at a brokerage; SIPC protects custody (not market value); part of the fund’s Treasury interest is often exempt from state/local tax, helpful in high‑tax states. If you want explicit deposit insurance and simple bank plumbing, HYSA wins. If you want brokerage convenience, same‑day settlement, and potential state‑tax benefits, a government MMF is great. Either way, the emergency bucket shouldn’t fluctuate and should be immediately accessible.

Q: Is it better to buy a single 6‑month T‑bill or build a 3-12 month ladder for money I need next year?

A: If you’ve got one fixed date (say, tuition due in August), a single T‑bill maturing right before that works fine. If your cash needs are spread out, or you just want to manage reinvestment and rate risk, build a ladder (e.g., 3, 6, 9, 12 months). A ladder staggers maturities so cash shows up when you need it, and you’re not all‑in at one rate. Rates fall? Longer rungs lock in earlier yields. Rates rise? Shorter rungs roll up faster. Either approach keeps risk in its lane. My usual play: hold 1-2 months of buffer in HYSA, then ladder the dates you actually need using auto‑roll so you don’t miss a reinvestment window.

Q: Should I worry about leaving $20,000 in checking that earns basically 0%?

A: If you need it in the next few weeks, no. Otherwise, yes, it’s quiet leakage. At 3% inflation, $20,000 loses about $600 of purchasing power over 12 months. Even worse, a low‑yield account around the FDIC national average (0.47% in Sep 2025) equates to roughly a -2.5% real return, or about -$500 a year on $20k. Keep 30 days of bills in checking; move the rest to insured HYSA or a government money market for emergencies, and use short T‑bills/CDs for dates you can pin down. It’s not about chasing yield, it’s about not accepting a guaranteed loss.

@article{how-to-invest-cash-if-inflation-is-3-smart-moves-now,
    title   = {How to Invest Cash if Inflation Is 3%: Smart Moves Now},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/invest-cash-3-inflation/}
}