Vanguard’s new research suggests that the comfort of holding extra cash carries a measurable long-term cost for U.S. households.
The investment firm released a May 2026 paper that examines how American households manage short-term cash, and the findings challenge common assumptions about where your savings belong.
The typical U.S. checking account yielded just 0.07%, and the average savings account 0.40% in early 2026, according to FDIC National Rates and Rate Caps data.
The gap between what cash earns and what a diversified portfolio generates is substantial, and the paper provides specific figures.
Vanguard data reveals the cost of excess cash over 30 years
The core finding centers on a projection comparing $10,000 held in cash against the same amount in a diversified 60/40 portfolio of stocks and bonds.
After 30 years, the invested portfolio reaches an average projected value of $53,636 in today’s dollars, the midpoint of 10,000 simulated outcomes, while cash grows to just $14,461, according to Vanguard’s research paper. Actual returns could vary widely above or below these projections.
That gap of roughly $39,000 represents the opportunity cost of keeping money on the sidelines. Those projections used Vanguard’s Capital Markets Model, running 10,000 simulated scenarios based on December 2025 conditions.
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The gap starts small, with the portfolio averaging $10,567 versus $10,118 for cash after one year, the report noted. By year 10, the invested amount averages $17,636, compared with $11,325 for cash; from there, compounding widens the divide sharply. The broader economic impact extends beyond individual households, according to the firm’s calculations.
If 50% of cash in checking and savings accounts moved to accounts earning two extra percentage points, U.S. households would collectively gain an estimated $55 billion more per year, the report indicated. At a three-point improvement across 75% of balances, that number climbs to $124 billion annually.
The opportunity cost of cash is a long-standing concern among economists. Writing in The Globe and Mail in May 2020, TD senior economist James Orlando described cash in terms that anticipate Vanguard’s framing: “Over the long term, cash is not a zero-cost option. It’s a money-losing asset.”
Vanguard’s framework for setting a cash reserve
The paper does not argue that you should eliminate cash entirely, and that nuance matters for applying the research to your own finances. Vanguard’s researchers recommend starting with roughly three months of typical expenses as a baseline reserve, then adjusting based on your income stability, expense patterns, and personal comfort level, the report explained.
A salaried worker who has stable income and predictable expenses and regularly finishes the month with money left over may need only one month of reserves, according to Vanguard’s framework.
The recommendation rises to two or three months for workers in the same income bracket whose expenses vary more from month to month.
Retirees face a different calculation, because their expenses frequently exceed regular income from pensions or Social Security. The paper suggested retirees may want to hold up to 12 months of expenses in cash to avoid selling long-term investments during unfavorable market conditions.
Cash reserves allow you to take advantage of attractive investment opportunities as they happen
About 75% of U.S. households experience at least one unexpected expense shock per year, with the typical cost equaling roughly half a month of expenses, according to Pew Charitable Trusts research cited in Vanguard’s paper.
Paulo Costa, a senior behavioral economist at Vanguard and one of the paper’s co-authors, has written extensively about how financial behaviors shape long-term outcomes.
Vanguard’s research cites studies showing that larger cash balances are often associated with greater financial well-being, regardless of total wealth, a finding the paper notes matters as much as the dollar value of the cushion itself.
Where Vanguard says your cash should sit to earn a competitive return
Choosing the right account is where many households leave the most money on the table, and Vanguard’s data makes that cost clear. A household maintaining an average $10,000 balance that moves it to an account paying three additional percentage points could earn an extra $8,780 over 30 years, the report calculated.
High-yield savings accounts, money market funds, and brokerage cash management accounts all typically pay meaningfully more than traditional checking or savings accounts. The report organizes financial needs into a “today, someday, later” framework that clarifies which accounts fit which purpose.
“Today” money covers expenses within the next 12 months and belongs in accessible, low-risk accounts. “Someday,” money covers possible income shocks like a job loss, along with future spending opportunities that aren’t immediate.
Vanguard suggests holding three to six months of essential expenses in a diversified mix of stocks and bonds, for example, in a taxable brokerage account, or in part using Roth IRA contributions (which can generally be withdrawn without penalty, though the paper cautions that this should be treated as a last resort)
T. Rowe Price published separate research in February 2026 that reinforces the same conclusion. The firm found that an investor who systematically contributed $12,000 per year, or $1,000 per month, to a 60/40 portfolio over five-year and 30-year periods ending December 2025, accumulated a substantially larger balance than one who made identical contributions to cash.
Related: Vanguard on five habits that predict your financial future
