After years of historically low interest rates, the landscape for savers and investors has changed fundamentally. While overnight and fixed-term deposit accounts offered little more than token interest rates for a long time, banks are once again attracting customers in 2026 with interest rates that are meaningful to many individual investors. At the same time, capital markets remain volatile: periods of sharp price increases alternate with significant setbacks.
Against this backdrop, an old question arises in a new guise: What role should overnight and fixed-term deposits play in a private investor’s asset structure—and how high should or must the cash allocation in the overall portfolio be to ensure a sensible balance between opportunities and risks?
Why overnight deposits and time deposits are back in the spotlight
Call money and time deposits are traditionally regarded as the building blocks of safe investing. They are generally held as bank deposits and, within Europe, are covered by statutory deposit insurance up to certain limits. In an environment of ultra-low interest rates, however, these products had lost their appeal over the years. Many investors saw little reason to hold cash balances in interest-bearing accounts beyond what was strictly necessary when the real return—after accounting for inflation—was consistently negative.
With the interest rate hikes by major central banks, this picture has shifted. Fixed-income products are once again contributing to a portfolio’s nominal return, while volatility in the stock markets has remained evident. As a result, the temptation is growing to reallocate larger portions of assets into supposedly “safe” fixed-income investments.
At the same time, the structural properties remain unchanged:
- Call money offers access at any time, but with a variable interest rate that banks can adjust at short notice.
- Time deposits provide predictable interest over a fixed term, but significantly limit flexibility.
Thus, overnight money and time deposits are primarily instruments for stabilizing assets and ensuring liquidity—they are not designed to compete in the long term with the returns of broadly diversified stock or ETF portfolios.
The Role of Cash in a Portfolio: Security, a Buffer, and Flexibility
In theory, the term “cash ratio” is often used to describe the proportion of short-term liquid assets relative to total assets. This term generally includes balances in checking accounts, money market accounts, and short-term time deposit accounts.
Cash serves several functions within a portfolio:
- Emergency Fund for Unforeseen Events
A sufficient liquidity reserve protects you from being forced to sell securities at unfavorable prices in the event of unexpected expenses (e.g., repairs, unemployment, illness). - Predictable financing for foreseeable goals
For expenses with a foreseeable timeline—such as a real estate purchase in a few years or major acquisitions—call money and time deposits offer the opportunity to park capital largely free of fluctuations. - Psychological stability and risk tolerance
A significant cash component in one’s assets can help one weather market movements with greater composure. Those who know that a portion of their assets is not subject to daily price fluctuations often react less impulsively to short-term turbulence. - Ability to act during market phases
During pronounced correction phases, available liquidity can be used to gradually build up positions. Without sufficient cash reserves, the only options are often to “sit it out” or make adjustments within the portfolio.
These functions illustrate that a well-considered cash ratio is a strategic tool. Neither a blanket maximization of cash driven by a desire for security nor a complete disregard for liquidity in favor of a maximum investment ratio is generally effective.
How much cash is a good amount to have?
The specific amount of an appropriate cash ratio depends heavily on an individual’s personal circumstances: income, job security, family obligations, planned investments, and personal risk tolerance all play a key role. Nevertheless, it is possible to establish some guidelines that can continue to serve as a reference in 2026.
Foundation: Emergency Reserve in Money Market Accounts
In practice, several months’ net salary held in a high-yield money market account has proven to be a sound basic safety net. A range of three to six months’ salary is often cited; for the self-employed or individuals with highly fluctuating income, a larger reserve may be appropriate.
Strictly speaking, this emergency reserve is not part of the investment portfolio but constitutes a separate safety component. It should be readily available and not subject to fluctuations in the capital markets.
Short- to medium-term goals: Using demand deposits and time deposits
For goals with a time horizon of approximately two to five years—such as saving for a down payment on a home or major planned purchases—a combination of demand deposits and time deposits is a good option.
A purely securities-based investment often does not make sense within this timeframe, as market phases with negative returns cannot be ruled out. At the same time, in many cases it is not necessary to park all funds in a single overnight deposit account.
One possible approach is to leave the portion of funds needed in the short term in an overnight deposit account and, in addition, to use fixed-term deposits with staggered maturities (e.g., one year, two years, three years). This spreads interest rate and reinvestment risks over time without completely sacrificing flexibility.
Long-Term Wealth Accumulation: Keeping Cash Allocations Low in Your Portfolio
In long-term wealth accumulation—and thus in the actual portfolio, which should consist mainly of stocks, bonds, and ETFs—the cash allocation should generally remain limited. Studies of historical return trends suggest that broadly diversified stock portfolios offer significantly higher return potential over long periods than interest-bearing investments, even if the latter are currently offering more attractive interest rates.
In practice, this means:
- For very risk-averse investors, a higher cash allocation of 10 to 20% in the portfolio may be reasonable, primarily in conjunction with a significant bond component.
- Balanced strategies tend to maintain a cash allocation of around 5 to 15% in the portfolio, in addition to a separate emergency reserve.
- Highly growth-oriented investors often reduce the cash allocation to 5 to 10% in order to take full advantage of return opportunities in the capital markets.
These guidelines are intentionally broad and do not replace an individual analysis. However, they make it clear that the majority of long-term investment capital should remain in productive assets, while money market accounts and time deposits should be used specifically for hedging and portfolio structuring.
Conclusion: Use overnight money and time deposits as deliberate building blocks, not as a substitute strategy
TaIn 2026, demand deposits and time deposits will once again be key components of private investors’ financial planning. They provide security, create liquidity, and contribute to returns to a limited extent. However, what matters most is how they fit into the bigger picture.
A clear distinction helps with classification:
- Safety reserve and short-term goals: Here, overnight money and, depending on the planning horizon, time deposits are the instruments of choice.
- Long-term wealth accumulation: In this area, cash holdings should be deliberately limited so as not to permanently undermine the earning power of stocks and other growth-oriented investments.
There is no universal answer to what constitutes an appropriate cash ratio in individual cases. It is the result of a personal balance between security, flexibility, and return ambitions. This article can provide guidance, but it does not replace individual advice.
