You’ve probably heard the phrase “cash on the sidelines” used in market commentary, often suggesting there’s a huge pool of money waiting to flood into the market. One reason this phrase persists is that the nominal amount of cash regularly hits record highs. Most recently, households have been holding more than $4 trillion in checkable deposits and currency—up from less than $1 trillion before COVID. This sharp increase can give the illusion that there’s an unprecedented amount of money “on the sidelines,” waiting to jump into the market.
Source: Aptus, Federal Reserve
But when we look at the data more carefully, cash as a percentage of total financial assets has been remarkably steady for over 20 years at roughly 15% (+ or -) over time. What has changed is where that cash is stored. Over the last decade, checkable deposits and currency (the cash you can immediately access) have risen from about 1% to 4%.
The main reason? The zero interest rate policy (ZIRP) era. With savings accounts offering next to no return, there was little incentive to stash money in traditional savings vehicles, so people preferred keeping their money accessible in checking accounts, knowing they weren’t missing out on much.
Source: Aptus, Federal Reserve
In more recent years, we’ve seen a rise in money market funds and a continued decline in savings deposits. This shift comes as investors seek better returns in U.S. Treasury bills (T-bills), which have offered a yield advantage over savings accounts with the added bonus of being exempt from state taxes.
Source: Aptus, Federal Reserve
The bottom line? Cash is always moving, and the idea of “cash on the sidelines” isn’t as impactful as it might sound. The reality is much simpler: cash levels are roughly where they’ve always been as a percent of financial assets and any cash one person uses to buy something or invest is now in the seller’s hands, and so on. It’s not about some massive reservoir of unspent capital ready to propel markets upward. So while the phrase may grab headlines, the underlying reality is far less dramatic.
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