It's natural to want to hold onto cash. Markets swing up and down, and investing can feel uncertain — especially in the short term. But keeping too much of your money in savings may actually work against you. Over time, inflation can quietly erode the value of cash, while diversified investments have historically outpaced it.
This article breaks down how much cash you should keep on hand, why holding too much can be risky, and practical ways to start putting your extra money to work — including options like guaranteed investment certificates (GICs), money market funds, and high-interest savings accounts. Whether you're new to investing or sitting on a pile of cash in your chequing account, here's what you need to know.
How much cash should you keep?
You should keep three to six months' worth of living expenses in cash for emergencies. This is your financial safety net — the money you can access quickly if you lose your job, face a surprise expense, or need to cover an urgent bill.
Beyond that emergency fund, the right move depends on your timeline:
Short-term goals (1 to 2 years). Keep cash in a savings account, ideally one earning a competitive interest rate.
Long-term goals (5+ years). Consider investing in a diversified portfolio for stronger growth potential.
Why holding too much cash is risky
Holding onto cash feels safe, but it doesn't eliminate financial risk. Inflation — the gradual rise in the cost of goods and services — can reduce the purchasing power of your savings over time. Interest helps, but there have been many periods where savings account rates can't keep up with the rising cost of living.
Fear of market volatility is one of the most common reasons people hold too much cash. Markets rally, dip, and it's hard to know what will happen next. That's understandable. But historically, staying invested over time has almost always been the more effective approach.
Despite short-term swings, markets generally trend upward over the years. Economic expansion, innovation, and corporate earnings growth tend to push markets forward. The longer you stay invested, the more you can smooth out those dips. Over time, market growth has consistently outpaced inflation.
Types of cash investments
If you have extra cash beyond your emergency fund, there are several low-risk options that can help your money grow faster than a standard savings account:
High-interest savings accounts. These offer a higher interest rate than a standard savings account while still giving you easy access to your money. They're a straightforward option for short-term goals or as a temporary holding place before you invest.
Guaranteed investment certificates (GICs). A GIC locks your money in for a set period — typically anywhere from 30 days to 5 years — in exchange for a guaranteed rate of return. You usually can't access the funds until the term ends, though some cashable GICs offer more flexibility.
Money market funds. These are mutual funds that invest in short-term, low-risk debt securities like government bonds and treasury bills. They tend to offer higher returns than a savings account while maintaining relatively low risk.
Treasury bills (T-bills). Issued by the Government of Canada, T-bills are short-term debt instruments that mature in less than a year. You buy them at a discount and receive the full face value at maturity, with the difference being your return.
Each option suits different timelines and comfort levels. The right choice depends on when you'll need the money and how much flexibility you want.
How to start investing your cash
Getting your extra cash invested doesn't have to be complicated. Here's a step-by-step approach:
Set your timeline. Decide when you'll need the money. Short-term goals (within 1 to 2 years) are often suited to savings accounts or GICs. For longer timelines, a diversified investment portfolio may offer stronger growth potential.
Determine how much to invest. After setting aside your emergency fund (three to six months of expenses), figure out how much extra cash you're comfortable putting to work. You don't have to invest everything at once.
Choose your approach. You can invest a lump sum all at once, or spread your contributions over time using dollar-cost averaging — investing a fixed amount at regular intervals regardless of market conditions. This can help reduce the impact of short-term volatility.
Set up automatic contributions. Automating your investments removes the pressure of deciding when to invest. By contributing the same amount each month, you get a variety of entry prices while consistently building toward your goals.
Pick an account type that fits your goals. In Canada, tax-advantaged accounts like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) can help your investments grow more efficiently. Consider which account aligns with your timeline and tax situation.
What to do if you're sitting on too much cash
If you've already accumulated more cash than you need, don't try to time the market. Even professional investors rarely attempt it — it's nearly impossible to do consistently. Instead, focus on what you can control: your comfort level and your plan.
Make a plan to get back in
If you're ready to invest, that's great. If you're not and want to take a breather, that's fine too. The key is to make a plan in advance and stick to it — so you're not stalling until some perfect moment arrives.
If it helps, choose a rally point you're comfortable with — say, a 5% recovery. Whatever you decide, commit to it. Markets go up and down, and a small rally doesn't mean the volatility is over. But as long as markets have existed, they've tended to go up over time.
Use dollar-cost averaging
Automatic deposits take the pressure off by investing the same amount of money every month. You get a variety of entry prices while consistently contributing toward your goals — and completely removing emotion and stress from the process.
Dollar-cost averaging means investing a fixed amount on a regular schedule, regardless of the price of whatever asset you're buying. It's one of the most straightforward ways to get back into the market without overthinking it.
Does cash deserve its bad reputation?
Cash's real rate of return over roughly the past century is somewhere close to 0.3%. That makes it one of the riskier assets over the long run — even though it doesn't feel that way.
There have been rare times when cash was the top-performing asset class — in 2022, 2018, 1981, and 1973. But historically, those stretches haven't lasted very long.
No asset class stays on top forever. That's why a mix is important: it helps insulate you from asset-, geographic-, or industry-specific downturns and keeps your portfolio stronger over the long run. Diversification and time are powerful tools for long-term growth.
