Excess Cash Investment

Excess cash investment is the practice of putting cash that is not needed for daily operations, planned spending or required buffers into instruments that earn a return while it waits to be used. Treasurers first set aside a minimum operating cash balance and any reserves, then invest the surplus, usually in order of priority: safety of principal first, then liquidity, then yield. Typical choices are bank deposits, money market funds, treasury bills, commercial paper and repurchase agreements, chosen to match when the cash may be needed. The permitted instruments, credit ratings, maturities and limits per counterparty are normally set out in an investment policy statement approved by the board. Also see short-term investment.