Cash Reserves

AAA

DEFINITION of 'Cash Reserves '

In finance, cash reserves primarily refers to two things. One is a type of short-term, highly liquid investment that earns a low rate of return (perhaps 3\% annually) such as investment company Fidelity's mutual fund called Fidelity Cash Reserves. This is where some individuals keep money that they want to have quick access to. The other type of cash reserves refers to the money a company or individual keeps on hand to meet its short-term and emergency funding needs.

INVESTOPEDIA EXPLAINS 'Cash Reserves '

The commonly recommended eight-month emergency fund that individuals are advised to have is a type of cash reserves. Individuals hold their cash reserves in bank accounts or in short-term, stable investments that are not likely to lose value so that they can withdraw these funds or sell these investments at any time without losing money, regardless of how well the stock market is performing.

An individual's cash reserves might consist of money in a checking account, savings account, money-market fund or money-market account, and short-term Treasury Bills and CDs. Individuals and businesses that lack sufficient cash reserves can resort to credit, or in extreme cases may be forced into bankruptcy.

VIDEO

Loading the player...
RELATED TERMS
  1. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  2. Cash Hoard

    A large amount of available money held by a company in anticipation ...
  3. Bank Reserve

    Bank reserves are the currency deposits which are not lent out ...
  4. Secondary Reserves

    Assets that are invested in safe, marketable, short-term securities ...
  5. Savings Account

    A deposit account held at a bank or other financial institution ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  1. Why should I dig further if I find a company has positive cash flow from investing ...

    A positive cash flow from investing activities could signal that a company is in financial trouble and is selling off its ... Read Full Answer >>
  2. Are short-term investments a good strategy for cash-rich small businesses"?

    Before investing, small businesses should determine what they want to accomplish with short-term investments. Preserving ... Read Full Answer >>
  3. How does it affect a company's credit rating to buy back shares?

    A stock buyback affects a company's credit rating when it uses debt to repurchase its own shares. Many companies prefer to ... Read Full Answer >>
  4. Are acquisitions only for large companies?

    Mergers and acquisitions (M&A) often make headlines. However, the companies that make the news rarely represent the types ... Read Full Answer >>
  5. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  6. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    Top Reasons to Invest in Google

    There's three main reasons Google stands to succeed for years to come.
  2. Entrepreneurship

    Six Steps To A Better Business Budget

    This easy but essential process helps owners ensure that their businesses can stay afloat.
  3. Retirement

    Building An Emergency Fund

    Do you have enough savings to cover the costs of unforeseen crises? We show you how to plan ahead.
  4. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  5. Professionals

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.
  6. Economics

    Sacrifices Necessary to Keep Puerto Rico Afloat

    After years of band aids and significant borrowing to meet its obligations, the time has come for meaningful reform in Puerto Rico.
  7. Professionals

    Advisors: Start Coaching Clients from the Start

    Behavioral coaching is vital to help investors stick to plan during market turbulence. Start coaching early and maintain it through the relationship.
  8. Mutual Funds & ETFs

    5 Disadvantages of Mutual Funds Compared to ETFs

    In the mutual funds vs. exchange-traded funds debate, ETFs have some clear advantages.
  9. Professionals

    Active or Passive ETFs: Which is Better?

    What will be more popular in the near future: active or passive ETFs?
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total Bond Market

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!