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Idle Funds

What is 'Idle Funds'

Money that is not invested and, therefore, earning no interest or investment income. Idle funds are simply funds that are not deposited in an interest bearing or investment tracking vehicle, that is, not participating in the economic markets. These funds are often thought of as "wasted" funds, since they do not appreciate in any manner.

Explaining 'Idle Funds'

In instances where there is a positive inflation rate in a domestic nation, idle funds will actually decrease in value from a purchasing power perspective, as the funds fail to keep up with the rate of inflation. One option individuals have to earn income on funds, while maintaining liquidity of those funds, is to invest in money market or short-term interest accounts that will provide the depositor with a short-term rate of interest.

Idle Funds FAQ

How do you use idle cash?

You can use idle cash by depositing it in a bank account, either a checking or a saving account. A checking account is the most liquid and allows the user to withdraw cash immediately, but has very low interest. However, earning something is always better than cash sitting idle and earning nothing.

How much cash reserve should I have?

Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's usually how long it takes the average person to find a job.

Which account gives attractive returns on idle money?

Liquid funds provide better returns than a savings bank account and is easily liquidated as well, making them attractive. Liquid funds attract taxes on both long term capital gains (LTCG) and short term capital gains (STCG) depending on the investment period.

How is idle cash calculated?

Idle cash is cash that is idle or not being used in a way to increase a business'value. It means that the cash is not earning interest. The calculation of simple interest is equal to the principal amount multiplied by the interest rate, multiplied by the number of periods.

How do I invest in overnight funds?

Overnight funds invest in reverse repo, CBLO, and other debt assets with a day maturity. Overnight funds earn through interest payments on their debt holdings. Since the funds invest in overnight securities, there is no scope for earning capital gains. They are the safest debt fund.

How do you manage idle money?

It is necessary to hold some amount of cash idle in a safe or checking account for regular and unforeseen expenses. However, the idea is not to hold too much. Instead, one should use techniques like forecasting and budgeting to minimize idle funds.

Why holding cash is bad?

The biggest risk in keeping too much cash on hand is the opportunity cost. Even when interest rates are higher, the real return on cash after taxes and inflation can be negative. Over the long run, only the equity markets have the potential to earn returns that outpace inflation.

Further Reading


The investment of idle public funds: a review of the issues
www.jstor.org [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

Income, Idle Funds and the Price of Real Estate in Modern Shanghai <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-CJYJ200609002.htm' />Income, Idle Funds and the Price of Real Estate in Modern Shanghai [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-CJYJ200609002.htm'>PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

The economics of idle public funds policies: a reconsideration: a replyThe economics of idle public funds policies: a reconsideration: a reply
www.jstor.org [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

The impact of financial intermediation on economic growth: The Nigerian perspectiveThe impact of financial intermediation on economic growth: The Nigerian perspective
papers.ssrn.com [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

Financial deepening and economic development of Nigeria: An empirical investigationFinancial deepening and economic development of Nigeria: An empirical investigation
papers.ssrn.com [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

Finance, funding, saving, and investmentFinance, funding, saving, and investment
www.tandfonline.com [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

Financial analysts' forecasts of earnings: Their value to investorsFinancial analysts' forecasts of earnings: Their value to investors
www.sciencedirect.com [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

A note on the alternative uses and yields of idle public fundsA note on the alternative uses and yields of idle public funds
www.jstor.org [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …

Economic consequences of applying Islamic principles in Muslim societiesEconomic consequences of applying Islamic principles in Muslim societies
www.emerald.com [PDF]
… are frequently called, are excess funds held by the governmental unit to accommodate the disparities which exist between receipts and disbursement of funds, or to serve as a contingency fund … 499-508; S. Kerry Cooper, "The Economics of Idle Public Funds Policies: A …



Q&A About Idle Funds


Why would someone want to put their money into an investment instead of a bank account?

If you invest your money in stocks, bonds and other financial instruments, you may be able to make more money from the initial amount invested over time than if you put it into a bank account where there is no risk involved but also no chance for making more money than what was originally deposited into the account. However, this comes with greater risk because investments can lose value as well as gain value depending on market conditions at any given time. Investing involves taking risks with one's own capital in order to potentially reap larger rewards down the road if those risks pay off favorably for investors who have made wise choices when choosing which investments they wish to pursue and how much they wish to invest in each particular investment that they choose to pursue .

Why aren't idle funds invested?

Idle funds are simply funds that are not deposited in an interest bearing or investment tracking vehicle.

Is there such thing as "no risk"?

No , there isn't such thing as "no risk". There's always some degree of risk involved when dealing with finances .

How do you earn interest on your money?

You can earn interest by putting it in a bank account or investing it in stocks, bonds and other financial instruments. This will allow you to make more money from the initial amount invested over time.

What does "earning anything" mean ?

Earning anything means that one has earned some sort of return on their original investment , even if that return is only small .

What is idle funds?

Idle funds are money that is not invested and, therefore, earning no interest or investment income.

What are idle funds?

Idle funds represent a wasted opportunity, as earning any kind of interest on your money is better than earning nothing.

How can you keep up with inflation on idle funds?

By investing in a money market account or short-term interest account. These accounts will provide the depositor with a short-term rate of interest.

Are idle funds "wasted" when they earn no income?

Yes, they are thought of as wasted since they do not appreciate in any manner.

Are idle funds good or bad?

Idle funds are neither good nor bad. They just exist.

Is it possible to lose purchasing power on idle funds?

Yes, if there is a positive inflation rate in a domestic nation, then the value of your idle fund will decrease from a purchasing power perspective as the fund fails to keep up with the rate of inflation .