2 times it’s smarter to sit on your cash than invest it, even as the stock market soars

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• When the Fed cuts interest rates, it stimulates the economy and can make investing more appealing.
• You should still keep money in your savings for emergencies or short-term financial goals.
• Taking a holistic approach to finance can help you achieve what you want now and in the future.

Stocks soared after the Federal Reserve cut interest rates in September. 

“When it comes to the stock market, broad strokes wise, lower rates mean that debts are less costly for businesses, which often results in higher profitability and typically higher stock prices,” says Christopher Stroup, CFP® professional, founder and president of Silicon Beach Financial. 

With the Fed having more rate cuts penciled in for the future, now may seem like a good time to evaluate whether you should be contributing more toward investing.

There are certain situations, though, where it isn’t the best move. We spoke to two financial planners about when you still might want to keep money in savings instead of investing it.

Short-term savings goals

The timeframe of your goal can largely influence whether your money is better kept in savings or in investment accounts. If you have a goal with a timeframe of a few years, it’s better to keep it in a savings account. 

“There’s less risk associated with that. You may not get a higher return in the long run, but the reality is that you want to protect that capital for those kinds of shorter-term expenses,” says Stroup. 

Now, not every bank pays the same interest on its savings account. The best high-yield savings accounts pay around 5% APY. Business Insider’s personal finance team monitors the highest bank accounts rates daily, and two of the highest-rate offers available are Pibank Savings (5.50% APY) and the  Newtek Bank Personal High Yield Savings Account (5.25% APY).

Top money market accounts are also offering similar rates, with the Vio Bank Cornerstone Money Market Savings Account( 4.90% APY) and Quontic Money Market Account (5.00% APY) at the top of the pack.

Money market accounts are pretty much the same as high-yield savings accounts, although some banks may implement tiered interest rate structures, ATM access, monthly service fees, and check-writing abilities.

If you already have some money saved and you don’t need to access it for at least several months, you could also open a CD.

The best CD rates pay around 4.50% to 5.50% APY for terms between 3 months and 18 months, and your rate will stay the same for the entirely of the CD’s term. That could be beneficial in the current economic environment.

The Fed could potentially cut rates again in November, and even more at future Fed meetings, which would more significantly impact variable-rate accounts like high-yield savings accounts and money market accounts.

Emergency savings

An emergency fund is a specific savings goal that many financial experts recommend implementing in your overall financial strategy. 

“I believe that everyone should have an emergency fund. Generally speaking, you should have at least three to six months’ worth of your living expenses. But if you’re just starting out, $1,000 is a good amount to shoot for,” says George Salinas, CFP®, CFS®, CRPC™, and financial advisor at Manske Wealth Management. 

Since unexpected financial emergencies don’t have a timeframe, it’s better to save this money rather than invest it. You don’t want to end up with less money than you originally invested because of a short time horizon.

High-yield savings accounts and money market accounts are most suitable for keeping emergency savings. CDs have early withdrawal penalties, so while they are good options for reaching short-term savings goals, they might not be the best fit for emergency money.

Both high-yield savings accounts and money market accounts are fairly accessible. You’ll be able to take out money at any time. Some banks may limit withdrawing money from savings more than six times per month, charging a fee for additional withdrawals. It depends on the institution, though.

Investing is best for long-term financial goals

Salinas points out that from a planning perspective, it’s important to make sure that your short-term goals align with your longer-term goals. 

“You shouldn’t think of them as separate, individually, mutually exclusive items. They’re all working in unison,” says Salinas. 

Investing your money can be worthwhile for long-term goals of five years or more, like reaching retirement. You can get higher returns in the long run if you invest instead of saving it in a bank account.

Taking a holistic approach to your financial strategy can help you make the most out of money for both now and in the future. It can also provide clarity on how to navigate shifting economic conditions in a way that benefits all your goals.