As public entities prepare their 2023 budgets, we’ve been asked what our outlook is on the value of cash in 2023. My answer is a straightforward, “Just like it was in the 1990s: 6.0%+.” It just has to be managed correctly.
The recent moves in short-term rates reflect averages that we experienced back in the 1990s. Bank deposit rates at that time remained low, but the U.S. Treasuries and other permissible short-term-investment vehicles hovered above the 6.0% range for most of the decade.
As conversations around your budget table focus on increased costs due to inflation, don’t let the value of your cash take a back seat. This level of income can lead from hundreds of thousands to millions of dollars in additional revenue towards next year’s budget.
On average, $1.0 million in added liquidity for investment can lead to an additional $60,000 in annual income to an entity’s budget.
The most important aspect to liquidity is that all cash should be invested through your financial institution(s). The only cash remaining on hand should be the cash you need to pay bills, and nothing more. The rest of your cash should be earning interest as an asset, where it can remain safe and still be liquid.