Where do rich people keep their liquid money?

Rich individuals typically keep their liquid money in highly accessible financial instruments known as cash equivalents.

Understanding Liquid Assets for High-Net-Worth Individuals

For wealthy individuals, "liquid money" doesn't solely mean physical cash in a vault. Instead, it refers to assets that can be quickly converted into cash without significant loss of value. These assets are crucial for managing immediate expenses, seizing opportune investments, or maintaining financial flexibility. While accessible, these instruments also aim to offer a modest return, unlike regular checking accounts, and often provide a higher degree of safety.

Primary Venues for Liquid Capital

High-net-worth individuals, including millionaires, frequently leverage a range of financial instruments that are almost as liquid as cash. These instruments are favored because they offer safety, accessibility, and often a better yield than standard bank accounts, without locking up capital for extended periods.

Here are the primary places where rich people keep their liquid funds:

• Money Market Mutual Funds: These are investment funds that pool money from investors to purchase short-term, high-quality debt instruments. They are designed to maintain a stable net asset value (NAV) and offer competitive yields while providing high liquidity.
• Certificates of Deposit (CDs): Time deposits offered by banks and credit unions. While they have a fixed maturity date, shorter-term CDs can still be considered highly liquid, and they offer a guaranteed interest rate for the specified term.
• Commercial Paper: This refers to short-term, unsecured promissory notes issued by large corporations. They are typically used for financing payroll, accounts payable, and inventories, making them a common money market instrument for large-scale liquid holdings.
• Treasury Bills (T-Bills): These are short-term debt obligations issued by the U.S. Department of the Treasury. Due to being backed by the full faith and credit of the U.S. government, they are considered one of the safest investments available. Some millionaires specifically choose Treasury bills for their cash holdings due to their superior safety and liquidity.

Why These Options Are Preferred

Rich individuals prioritize a balance of liquidity, safety, and modest returns for their liquid funds. Traditional bank accounts, while liquid, often offer negligible interest rates and may not provide the same level of security or diversification as specialized cash equivalents.

Here's a quick overview of these preferred instruments:

These instruments allow wealthy individuals to keep a significant portion of their capital readily available while still earning a return, protecting against inflation, and maintaining financial maneuverability for future investments or expenditures.