If your finances are strong, you’re holding three to six months of cash — perhaps more — to make sure you can cover bills easily without having to operate your business from check to check.

Cash reserves cover your ordinary bills along with the classic “rainy day,” such as when a piece of equipment breaks down and needs a major repair. Your reserves can be a lot of money, but you also need it ready at nearly a moment’s notice. So what do you do with it?

Of course you can’t put it in high-flying stocks. You can’t take that risk if you want to pay your bills on time. The simplest and most risk-free option will be at a bank or credit union, where deposits are insured for up to $250,000 by the Federal Deposit Insurance Corp. or the National Credit Union Administration. If you need more cash reserves than that, you may need more than one financial institution.

Making It Work for You

By now you might be feeling antsy. Just leave all that money in the bank, to sit there? When I could be investing it in the market and making a lot more money on it? Well, yes. Who wants to see their cash reserves nosedive on one of those volatile trading days?

The good news is that high-yield savings accounts abound these days, paying as much as 5% or more as of this writing. This is an ideal option for your cash reserves, but these interest rates won’t last forever. When they dip back down to dismal levels, what do you do? 

You don’t have to park reserves in an account where they’ll deprive you of earnings you could make perfectly safely. The key? Don’t keep all your money in safe but interest-stingy accounts. Treat them simply as a holding pen for the bills you’re about to pay that month. For the rest of your reserves, there are better, and equally low-risk, choices.

Money Markets

Money market accounts, usually with check-writing privileges, are among the most popular alternatives for holding cash that needs to be liquid but can earn some interest while waiting to be put to use.

“A money market is like an interest-bearing account,” says Melinda M. Toy, CTP, vice president and director of treasury management for PyraMax Bank, a full service commercial bank in suburban Milwaukee. “It’s 100% liquid.” It’s also insured by the FDIC. Economic factors and competition push money market interest rates higher than what you can get on a regular savings account in a low-interest-rate environment.

One consideration is that money market accounts often limit you to six transactions a month. “It’s not for paying frequent operating expenses,” Toy says. But you could use such an account to hold your cash and simply make a single withdrawal once a month to cover all of your month’s expenses.

Money market accounts also vary in minimum balance requirements. Some pay better returns tied to a higher minimum. As always, research the details of the account, shop around and compare several offerings.

Certificates of Deposit

Another federally insured instrument is that old standby: the bank certificate of deposit. CDs pay interest, too. Unlike the money market, CDs tie up your money in return for somewhat higher interest rates. The higher interest you want, the longer the CD’s term is going to be — three months to five years or even longer.

For liquid cash, that probably sounds like a nonstarter. But there’s a workaround. One longtime strategy is to “ladder” CDs — staggering their expiration dates so that at any one time you may be within a month or so of being able to cash in if necessary.

Here’s how it works: Suppose you have $20,000. Instead of putting it all in a one-year CD, you might buy a three-month CD for $5,000, a six-month CD for $5,000, a nine-month CD for $5,000, and a one-year CD for $5,000.

As each of the lower-interest-rate, shorter-term CDs expires, you roll the money over into a new one-year CD at a higher return. That way, you’ll have one that comes due every three months in perpetuity. Nine months in, all four CDs together will earn the equivalent of a one-year yield on your original $20,000. But you can still get access to the money in $5,000 increments every three months.

You can employ the same tactic over much longer terms, and you can time expiration dates so they’re closer together. Of course, shooting for a longer maturity date, a shorter time between CD expiration dates, or both will take longer to make it all.

Toy points to another recent offering from some banks and credit unions: so-called liquid CDs. “It’s a CD, but it’s kind of like a money market,” she says. It offers the higher earnings of a CD rate, but allows additional, though limited, access to funds. For example, Toy has seen some that permit at least one withdrawal without a penalty over the term of the certificate.

If your financial institution offers such an instrument, consider it. It won’t be as liquid as a money market account, so you can’t use it as feedstock to cover those monthly bills from your business checking account. But it does offer a secure, money-earning harbor for an emergency stash.

Online Banking

Online banking often offers the most bang for your buck. Bankrate reports savings interest rates that are several percentage points higher than what typical brick-and-mortar banks are paying. Some can offer higher savings account interest rates because they don’t have brick-and-mortar overhead costs. Bankrate periodically evaluates and rates the best of these banks; check their website at www.bankrate.com/banking/best-online-banks.

As with traditional banks, however, they might require a higher minimum balance for the best rates. And you must do all your business electronically, so you can’t deposit cash directly, although online banks offer ATM access for cash withdrawals. Many even reimburse you (although there’s a monthly cap) if the ATM you use charges a fee.

Before choosing an online bank, carefully research fees for transactions, monthly account maintenance or falling below a minimum balance. A miscalculation could undercut any financial advantages you gain. And consider whether you are more comfortable working with a banker who can give you advice on the unique circumstances of your business.

Investing

If your objective is absolute safety, you’re better off sticking with a bank account of some kind. But as long as your funds are spread around, you could consider some additional options. They might make you money, but they aren’t insured the way banks are. So you could lose money, too.

Dividend stocks are one of those options. Companies that pay dividends on their stock are usually thought to be more stable overall, so in addition to paying periodic dividends, their price may appreciate in a generally favorable market. Think tortoise, not hare.

But never put money in any particular investment unless you can afford to lose it all. The most rock-solid company could be one catastrophic event away from collapse — from a natural disaster, financial scandal or unexpected competitive disruptor. So whatever you do, don’t consider those your short- or even medium-term emergency reserves.