The Short Version – What you need to know: Cash is offering yields that are unusually high and unsustainable. Stick with it too long, and you risk missing better opportunities. 

 

Here’s why:

 

There is no denying it — cash has been king lately. After years of getting pennies on your savings, it finally feels like the tables have turned. Money market funds are paying 4-5%, Treasury bills are delivering solid, predictable returns, and even your once-neglected savings account is earning something that resembles real money.

For the first time in over a decade, savers are winning — or at least it feels that way. If you’ve been parking your money in “safe” places, collecting interest without risk, it’s been a breath of fresh air. No volatility. No headlines to stress over. Just quiet, steady yield. And for many, that’s been a welcome change.

But here’s the problem: that feeling of safety is blinding. Because the moment rates start to fall — and they will — the music stops. And by the time most investors realize the opportunity has moved on… it already has.

There are a pair of market forces looking to see the interest rates on cash to get cut, the first is President Trump’s constant pressure on the Fed to cut rates, a message that dates back to the first term, and likely his long-held belief from a background in real estate that unnaturally low rates drive asset values up. And he’s right, on that side of the ledger, equity assets will go up in an environment where cash has low intrinsic value. The second element is the slowing economy, for fear of a deterioration in consumer confidence under the new weight of tariffs on imports, the consumer will see a pair of financial pressures: 1) that the costs of goods continue to rise, and 2) taxes and wages are likely flat for the year to come. 

But here’s the warning no one likes to hear:

Cash is a trap. And by the time rates fall, it will be too late to move.

The Fed’s current interest rate — just over 4.25% — has created the illusion that holding cash is a viable long-term strategy. But history tells a different story. This window won’t stay open much longer.

When the Fed Cuts, Yields Vanish

Let’s take a step back and look at the broader pattern behind rising cash yields. When the Fed raises interest rates, it’s typically doing so because the economy is running hot; inflation is climbing, jobs are strong, and markets are roaring. This sounds a lot like 2024 to us. In that kind of environment, it makes sense that cash starts paying again. It’s a signal that the Fed is leaning into strength, cooling off excess demand, and trying to engineer a “soft landing.” A condition we saw engineered masterfully in 2023/2024 by Jerome Powell and the FOMC.

Inflation is already making its way through the economy — and the first wave is hitting the Producer Price Index (PPI), which tracks what upstream industrial producers pay for inputs. This month, it jumped 21% month-over-month, largely due to the impact of new tariffs. This marks the first tangible sign of tariffs driving real economic consequences.

 

But here’s what most investors miss: those rising yields are the last breath of the boom. And when the tide turns, the shift is fast and often violent. Look at the Fed’s past behavior, every time it hikes even moderately and over several quarters, it eventually pivots twice as fast:

• After peaking at 6.5% in November 2000, the Fed cut rates to under 2% by February 2022, as the dot-com crash began unraveling.
• In 2006, rates hovered at 5.25%, but by the end of 2008, we were at zero, as the financial crisis hit with full force.
• In 2018, the Fed started easing again within months of its last hike as trade tensions and growth fears crept in, before COVID even surfaced, and then COVID short-circuited the recovery that began in 2015.
• With COVID in the rear-view mirror, the Fed continued that work, successfully raising rates in the most ambitious clip ever from 2022 to Sept 2023, where we are hovering now…and it is now VERY unlikely the next move is higher. 

This isn’t a coincidence. The Fed hikes gradually, cautiously, data-dependent, often telegraphed months in advance. But when does it cut? It cuts decisively. Because by that point, the damage has already begun.

So what does this mean for cash investors?

It means that the window to benefit from +4-5% yields is narrow and shrinking. And more importantly, if you wait until the Fed actually begins cutting, you’ve already missed the market’s reaction. Bond prices have risen. Equities have started their climb. And your “safe” money is now chasing yesterday’s opportunities.

Why Waiting to “See What Happens” Doesn’t Work

Here’s the trap:

• You hold cash at 5% because it feels safe.
• The Fed cuts once, then twice, and suddenly your yield is 3.5% or lower.
• You decide it’s time to buy bonds… but they’ve already gone up in price.
• You look at equities… and they’re already rallying because the market saw this coming.

In short: you’re chasing returns with worse timing, less yield, and more risk.

You Only Get One Shot at Today’s Yields

Cash works “right now”, but it doesn’t scale and cannot last. Your bank teller getting you to “buy a CD for +5%” is the calm before the collapse. Those 6 months of “teaser” rates get your capital off the sidelines and lets the bank buy longer term duration debt, they pay you the +5% they collect from other longer term assets for the first 6 months (the duration of the CD), then if and when rates drop they are left with a long term asset still paying the +5% yield and offer you the new CD at prevailing rates at 3% or less…the bank profits on the spread by letting you lend short, while they lend long.

You can’t lock in a 5% money market yield for 10 years, but you can with a well-structured bond ladder or strategic fixed-income allocation. You can own dividend stocks or total-return equity strategies that compound for years.

When rates fall, you’ll either:

• Be stuck rolling over cash at lower yields, AND
• Wish you’d acted when the market was giving you better options.

What to Do Instead

• Buy bonds now (treasuries): Especially in the 2–5 year space. You can lock in 4–5% before yields decline, leaving you with the higher quality, longer duration yield. If you are trying to “play it safe” and see how things play out, treasuries have always had a reliable market and will continue to pay you your interest regardless of economic conditions.
• Buy bonds now (non-callable): If you are buying bonds for cashflow you use today or in the coming 5-10 years (read: “in retirement”), buy non-callable bonds. You typically accept a lower yield compared to callable bonds, but the lender cannot buy you out of that debt and refinance the debt. This puts you in the driver’s seat, to either hold the bond and collect that ample coupon or rates drop, OR sell the bond for its current value.
• Shift cash to long-term plans: Allocate toward portfolios positioned for a rate-cutting environment, dividend growth stocks, high-quality bonds, real estate, and balanced risk assets.
• Stay ahead of the Fed: The market always moves before the headlines. When Powell cuts rates, it won’t be a buying signal, it’ll be a confirmation that the moment has already passed. Banks have teams of economists and connections inside the FED and are looking at data months before you walk into your bank and speak with the teller about a “risk-free” deposit.

Cash feels safe — until it isn’t.

Take a good look at the historical chart of the Federal Funds Rate above, but not for just the last year or two, but the last 70 years. What you’ll see is a clear and uncomfortable truth:

The natural state of cash is not high yield. It’s long, grinding valleys that punish savers.

 

 

Yes, there are spikes, dramatic ones, even. The early 1980s. The mid-2000s. And today. But these peaks are brief and always surrounded by extended stretches where cash earns next to nothing.

• After the Fed slashed rates in 2001, it took four years to get back above 4%, and that lasted barely two years before the next collapse.
• From 2009 to 2016, rates hugged zero for seven years straight. Cash investors sat in the valley, earning nothing, while markets rebounded.
• Even after the 2018 hikes, the Fed was back to cutting within 12 months, and we were back near zero by early 2020.

These low-rate valleys are where cash lives most of the time, not in the rare air of 5% yields. And once those peaks are gone, they’re gone fast.

So yes, cash feels good now. But if you’re holding out, waiting to “see what happens,” remember this:

By the time you realize the yield is gone, so is the opportunity.

When the Fed cuts, markets move ahead of it. Bond prices climb as yields fall and equities start to move upward. That’s already happening before the average investor has time to react.

Meanwhile, your money market fund quietly drops from 5% to 4%, then 3%, and suddenly you’re back in a world where you’re being punished for playing it safe.

Smart investors aren’t waiting. They’re reallocating, locking in today’s bond yields, positioning for equity upside, and shifting from defensive to dynamic while the window is still open.

Because in the world of investing, safety is not the absence of risk, it’s the presence of opportunity. And that opportunity doesn’t wait.

Caution: This Does Not Apply to Your Emergency Fund

Before you do anything, let’s be clear:

Your emergency fund is not an investment, it’s an insurance policy.

The guidance above is about idle cash, not essential cash. The money you’ve set aside to cover 3–6 months of expenses for job loss, medical bills, and unexpected emergencies, should remain right where it is: liquid, accessible, and safe.

That portion of your financial life is doing its job by being available, not by chasing returns. The fact that you’re earning 4–5% on it right now, that’s just a bonus. And when rates drop, that bonus fades, but the purpose of the emergency fund doesn’t.

So you can leave it alone.

Instead, focus on the rest of your cash. The extra cash in checking, the overfunded savings account, the money sitting in brokerage sweep accounts or CDs that keep rolling over with no plan. That’s the cash at risk of missing an opportunity. That’s where inflation quietly erodes purchasing power year after year. And that’s where smart investors should be looking now, before yields slip away.