Where to Keep Cash: Tax-Efficient Alternatives to CDs and Savings Accounts

Featuring a 25-Minute Educational Video with Blair Tushaus

If you’ve ever looked at your savings account and thought, “At least it’s safe,” you’re not alone. But “safe” can quietly turn into “stuck” when your cash is earning very little, and when the IRS takes a bite out of every dollar of interest you do earn.

In this podcast-style conversation, Blair Tushaus (financial advisor at Tushaus Wealth Management) breaks down why the “default” cash parking spots such as traditional savings accounts and CDs, may not be as efficient as they look once taxes enter the picture, and what types of strategies some families use to potentially improve both liquidity and after-tax outcomes.

Watch the full video on YouTube here.

Key Takeaways

• If your cash is earning interest, that interest is typically taxed as ordinary income, so your “headline yield” may not be your real return.
• CDs can offer a higher stated rate than a basic savings account, but they often require locking money up for a set term (and interest is still generally taxable).
• Bonds, including municipal bonds, can pay yield, but they can also lose value when interest rates rise, so they aren’t always the same thing as “cash.”
• Blair’s core framework: try to move from “income that’s taxed every year” to “appreciation that may be taxed later,” depending on the strategy and situation.
• ETFs can be liquid (trade daily) and are often considered tax-efficient versus many mutual funds because of how they’re structured, though they are not “tax-free,” and you can still lose money investing.

Why “safe cash” still deserves a strategy

“We all think about where we put our safe money… you got to have some type of cash reserve… new roof… window replacements… we need that bucket of cash that’s going to be safe in our portfolio, but we also don’t want it under our mattress.”

In other words: cash has a job. It’s there for real-life expenses, an emergency fund, and peace of mind. The opportunity (and the risk) is that many people treat that cash like it has only one “home,” when there may be multiple ways to structure it depending on your timeline, tax bracket, and how soon you may need access.

The “default” problem: bank savings and CDs may underdeliver after taxes

“I bank at Chase and… my Chase savings yields me 0.1%.”

“Even if that savings account yielded 4%… yield producing things like CDs, high yield savings, bonds… that’s all taxable income as ordinary income… and that’s where we see most people have their highest tax brackets.”

One of Blair’s biggest points is that interest is often the least “tax-friendly” way to earn on cash, especially for higher earners. The IRS generally treats interest from bank accounts and certificates of deposit as taxable interest.

"It’s not what you make, it’s what you keep”

“4%… is going to yield you $40,000 on a million… that sounds pretty good, but it’s not what you make, it’s what you keep.”

“The highest marginal tax bracket is 37%… So… 37% on the 40,000… That’s $14,800 you’re going to have to then give back.”

Blair is highlighting a planning mindset we use every day: you don’t spend “pre-tax returns.” You spend what’s left after federal, state, and local taxes, inflation, and fees. And because the top federal ordinary income tax rate reaches 37%, the tax drag on interest can be meaningful for high earners.

Bonds aren’t the same as cash (and they can lose principal)

“People don’t realize that bonds have principal risk… bonds produce yields, that is income… but… as rates go up, bond values go down. So it’s this inverse relationship.”

This matters if you’re using bonds (or bond funds) as a “cash alternative.” Bond prices and interest rates are well known to move in opposite directions—when rates rise, existing bond prices tend to fall.

So yes, yield matters, but principal stability matters too, especially if the money may be needed soon.

Blair’s core shift: move from “income” to “appreciation” when appropriate

“We need to invest in something that’s not ordinary income… something that appreciates…”

“How do we invest into the things that are in the long-term gains realm?”

Conceptually, Blair is contrasting two tax treatments:

• Interest (typical of savings accounts and CDs) is generally taxed as ordinary income.
• Long-term capital gains apply when an investment is sold after being held for more than a year, and the IRS notes that a 20% capital gains rate can apply once taxable income exceeds certain thresholds (with some exceptions in special situations).

That difference is why “tax efficiency” is not just about chasing a higher rate—it’s about choosing the type of return you’re earning (interest vs. growth) and when that return becomes taxable (ongoing vs. potentially deferred until sale), highlighting potential tax advantages.

What Blair means by “non-qualified accounts” and the ETF “wrapper”

“Typically we do it in the structure of a non-qualified account… a trust account, an individual account… joint with rights of survivorship…”

“The non-qualified accounts are the accounts that we take our after-tax dollar and invest it.”

In plain English, a “non-qualified” account here means a taxable brokerage account (as opposed to a qualified retirement account like an IRA). The goal Blair describes is using that taxable account to invest in a way that may tilt the return toward appreciation rather than interest.

Why ETFs often come up in tax-efficiency conversations

“Something we like to utilize are the wrappers of ETFs… they are very liquid… we can sell these ETFs on a daily basis…”

“The reason why we use ETFs is because the tax efficiency allows us to invest in things that will appreciate over time and will not cause a taxable event until we sell that position.”

It’s true that ETFs are often considered tax-efficient vehicles—largely because the ETF creation/redemption process can help limit capital gains distributions compared to many mutual funds.

Important nuance (and worth stating clearly): ETFs are not automatically “tax-free.” Depending on what an ETF holds, it may still distribute dividends or other income, and selling an ETF investment can create a taxable gain or loss. The planning opportunity Blair is pointing to is that, unlike interest that is typically taxed as it’s paid, investment gains are generally realized when you sell, and that timing can create more flexibility in some situations.

Liquidity and control: accessing cash without CD lockups

“If anything, it’s more liquid than CDs… it’s just as easy to move in and out from your checking.”

CDs commonly offer a higher rate in exchange for keeping funds on deposit for a specified short-term (often months or years). That structure may be fine for money you truly won’t need, but it’s a real tradeoff if liquidity matters.

Blair’s point is that some ETF-based approaches aim to keep daily liquidity while pursuing a more tax-aware return profile. Whether that’s a fit depends on risk tolerance, time horizon, and how you define “safe” or low-risk.

“Savings replacer” ETFs and downside protection

“There’s ETFs out there that we specifically utilize for these savings replacers… have a 100% protection against the downside risk… an ETF that follows SPY… has a cap of 6 ½%… and the downside protection is 100%.”

This is where it’s helpful to understand the category Blair is referencing. Some ETFs are designed with “defined outcome,” “buffer,” or “downside protection” objectives using options strategies. In general, these funds seek to provide a stated level of downside buffer/protection and a stated cap on upside over a defined period (often called an outcome period).

Two critical notes before anyone treats these as a drop-in replacement for a bank account:

• Defined-outcome features are typically tied to specific time windows and terms (cap, buffer, fees, and holding period). Buying and selling outside the intended window can change results.
• Even products described as “100% downside protection” can still involve risk, limits, and complex outcomes. Morningstar has specifically discussed that there can be a “catch” to 100% downside-protection ETFs (including tradeoffs in upside and costs).

This is exactly why Blair emphasizes having a real conversation about goals and risk, because “safe” isn’t one-size-fits-all when markets are involved.

When should you start thinking about tax-efficient cash strategies?

“Honestly, people of all ages should be thinking about these types of things.”

Especially, “anywhere from 50 and on, as they have built up their assets and now need to have some level of protection, some tax efficiency… Those assets have to last them for 20, 30, 40 years.”

If you’re within ~10–15 years of retirement, already retired, or sitting on a meaningful cash position in savings/CDs, it may be worth reviewing your “cash bucket” the same way you’d review your investment portfolio: What’s the purpose of this money, when might you need it, and what’s the after-tax return you’re actually keeping?

Conclusion

Cash doesn’t have to sit idle, but it also shouldn’t be asked to do a job it can’t do. Blair’s main message is simple: if your “safe” money is producing interest, you may be paying ordinary-income tax rates for the privilege, and there may be more tax-aware ways to structure cash-like reserves depending on your goals and comfort with risk.

If you’d like the full context, watch the complete conversation here:

https://www.youtube.com/watch?v=omtNup_B71g

And if you want a second set of eyes on your current cash strategy, we offer a complimentary 1-hour Strategy Session to assess your situation and map out options aligned with your timeline, taxes, and risk tolerance. Book here:

https://tushausgroup.com/book-a-strategy-session

Frequently Asked Questions

What does “tax efficiency with cash investments” actually mean?

It usually means looking beyond the stated interest rate and asking what you keep after taxes. Interest from bank accounts and CDs is generally taxable as interest (often taxed at ordinary income rates), while some investment returns may be taxed differently depending on how and when gains are realized.

Are CDs tax-efficient?

CDs can be useful for certain goals because they may offer a higher stated rate than a traditional savings account, but the interest is generally taxable. Also, CDs typically require you to keep money on deposit for a set term, which may reduce flexibility.

How is a savings account or high-yield savings interest taxed?

Bank interest is generally taxable interest. Even if a high-yield savings rate looks attractive, taxes may reduce the net benefit, especially for higher earners.

Are bonds “safe” like cash?

Bonds, such as treasury bonds, may be lower volatility than stocks in many cases, but they still carry risk, including interest-rate risk. When interest rates rise, existing bond prices tend to fall, which can impact principal, especially in bond funds.

What is a “non-qualified” account?

In this context, it generally refers to a taxable brokerage account (not a qualified retirement account like an IRA). You typically invest after-tax dollars, and taxes depend on the type of return (interest, dividends, capital gains) and when gains are realized.

Why are ETFs often described as “tax-efficient”?

ETFs are often considered tax-efficient relative to many mutual funds because their structure can help limit capital gains distributions. That said, ETFs can still distribute dividends or other income, and selling can trigger capital gains taxes.

What are “buffer” or “defined outcome” ETFs, and are they the same as a savings account?

These ETFs use options to target a specific outcome over a defined period, often combining a cap on upside with a stated downside buffer/protection. They are still market-linked investments with constraints and risks, and outcomes depend on timing, fees, and the specific product rules.

When should I talk to an advisor about my cash strategy?

If you’re holding significant cash in savings/CDs, approaching retirement, or trying to reduce tax drag, it may be worth a review. The right approach depends on your time horizon, liquidity needs, risk tolerance, tax situation, and financial goals, so a personalized plan can help you avoid costly assumptions. You can book your free call or strategy session with TWM today.

The tax strategies discussed in this article are for educational purposes only and are not offered as advice.