Cash Investment

DEFINITION of 'Cash Investment'

1. Short-term obligations, usually fewer than 90 days, that provide a return in the form of interest payments. Cash investments generally offer a low return compared to other investments. They are also associated with very low levels of risk and are often FDIC-insured.

2. An individual or business's direct financial contribution to a venture, as opposed to borrowed money.

BREAKING DOWN 'Cash Investment'

1. Money market funds and certificates of deposit are examples of cash investments. Whereas it might be possible to earn an 8% annual return from a stock, a cash investment might return only 1% per year. Market interest rates dictate how much investors can earn from their cash.

2. For example, in real estate, a buyer who takes out a mortgage is expected to make a cash investment in the form of a down payment. The borrower's cash investment lowers the lender's risk, since the borrower will have something of his own to lose if he defaults on the mortgage. If the borrower's cash investment is less than 20%, the lender will require the borrower to purchase private mortgage insurance to protect the lender's interests.

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