Takeaways
- Cash is legal tender used to buy and sell goods in an economy.
- U.S. dollars are a fiat currency issued by the U.S. Department of Treasury.
- Cash accounts, like checking and savings accounts, hold customer’s cash.
- Saved cash earns interest income, which grows cash savings over time.
- Cash can be borrowed quickly, and borrowers pay interest on those funds.
What Is Cash?
Cash is legal tender used to exchange goods or services. It can be physical, such as paper currency or coins, or digital, like online savings accounts or cryptocurrencies.
In personal finance and economics, cash is the medium of exchange for a currency that is readily available for use. In the United States, that currency is the U.S. dollar, which the U.S. Federal Reserve regulates.[1]
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How Cash Works
Cash has historically referred to physical currency you have on hand. This includes U.S. dollar bills and coins, which are considered fiat currency.
U.S. dollars are considered fiat currency because a physical commodity, like gold, silver, or other precious metals, does not back them. Instead, they are backed by the full faith and credit of the U.S. federal government.
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$5.6 Trillion: In November 2024, the total Monetary Base in the United States, according to the Federal Reserve. The monetary base accounts for all currency in circulation plus reserve balances.[2]
In personal finance, cash can also take the form of currency quickly converted into cash. This can include currency saved in checking accounts, high-yield savings accounts, checks, or money orders.
For small businesses, “cash” also consists of cash equivalents, which are financial instruments that can be quickly converted into cash. Cash equivalents include U.S. T-bills, corporate bonds, and marketable securities.
What Is Digital Cash?
Digital cash is the electronic system of processing payments online, via mobile devices, or through digital point-of-sale systems.
Digital cash facilitates a convenient way to send, receive, and process transactions without carrying physical cash or payment cards (like debit or credit cards) or incurring high processing fees.
It truly represents a class of technologies that help complete cash transactions electronically. Central banks, like the Federal Reserve, have digital currency transactions. Additionally, third-party payment apps like Apply Pay, Cash Appy, Venmo, and Zelle facilitate the flow of digital cash.
In recent years, cryptocurrencies like Bitcoin have emerged as another alternative to digital transactions with the U.S. dollar. Instead, these currencies have their ecosystem and technology (blockchain for Bitcoin) that facilitate the storage, payment, and movement of funds.
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Modern Ways to Pay with Cash
- Paper Bills and Coins: Paper bills and coins make up most of the physical circulating USD. The most frequently used paper currency in America is the $100 bill.[3] (Learn more about how much cash to keep in your savings account).
- Cash Payment Apps: The proliferation of mobile phones and apps has caused a boom in cash payment apps like Apply Pay, Cash Appy, Venmo, and Zelle. Additionally, online banks provide easy-to-use money transfer apps. (Learn how to sign up for an online bank).
- Debit Cards: These payment cards pull cash directly from your checking account. Banks offer debit cards to account holders, and they help manage debt levels. (Learn how to sign up for a debit card).
- Credit Cards: These payment cards are lines of credit offered by banks and credit unions to let you make purchases when you don’t have cash. Account holders pay off their balances monthly. (Read more about credit card minimum payments).
- Personal Checks: Checks are paper slips linked to your checking or savings account. They allow you to transfer cash to someone when you don’t physically have some money on hand. (Learn more about personal checks).
- Money Orders: These prepaid paper documents transfer money between two parties. Money orders are valuable when you don’t have a checking or savings account. (Learn more about how money orders work).
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5 Secure Places to Stash Cash
Storing your cash in the right spot can earn you interest income and take advantage of compound interest. Here are five places to stash your cash:
- Checking Account: Banks offer checking accounts for everyday purchases, which allow you to make cash deposits and withdrawals and link debit cards. Setting up a great checking account allows you to manage your finances. (Learn about our picks for the Best Checking Accounts).
- High-Yield Savings Account: Storing your cash in an online high-yield savings account allows you to earn interest on your funds. Savings accounts have variable interest rates and are great for emergency and slush funds. (Learn about our picks for the Best High-Yield Accounts).
- Certificate of Deposit: You can also earn high interest with a certificate of deposit (CD) account. Certificate of deposit accounts have a fixed interest rate, which gives clarity to investors and savers. You can invest a couple hundred dollars in short-term CDs or thousands in a Jumbo CD. (Read about our picks for the Best Certificate of Deposit Accounts).
- Money Market Account: To earn an interest rate above your checking account, you can save cash in a money market account. Money market accounts have a floating interest rate and offer check-writing services, too. (Read about how to set up a money market account).
- U.S. Treasury Bills: Institutional investors consider U.S. T-bills one of the safest places to store your cash. U.S. T-bills are short-term interest-bearing notes issued by the Federal Reserve in $100 increments. (Learn about how to purchase U.S. T-bills).
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5 Quick Ways to Borrow Cash
Some purchases require large amounts of cash, and if you don’t have the money you need to make a purchase, here are five ways to borrow cash:
- Personal Loan: For short to medium-term cash needs, personal loans allow you to borrow money for travel expenses, house renovations, or moving expenses. Financing terms are based on your credit score and credit report. (Read our Personal Loan 101 Guide).
- Payday Loan: If you only need cash to cover short-term expenses, you can consider a payday loan. These loans are usually less than $500 and are paid back with your next paycheck; otherwise, you incur fees. (Read about whether payday loans are right for you).
- Credit Card: Banks and financial institutions issue credit cards to help facilitate making short-term purchases when you don’t have cash on hand. Credit cards allow you to borrow up to your credit limit. (Read about how to boost your credit score).
- Installment Loan: Issued by banks and credit unions, installment loans give you a lump sum of cash. You borrow this amount of money and pay the amount you borrowed plus interest over time. (Read more about installment loans).
- Mortgage: Banks and financial institutions issue mortgages if you are trying to purchase your first home or another piece of real estate. (Read about how to get a mortgage).
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Smart Summary
Cash is legal tender that allows you to buy and sell goods and services. In the U.S. economy, the currency is the U.S. dollar, which the Federal Reserve regulates. You can stash cash in online bank accounts, use digital cash to make quick payments or utilize the latest in payment technology to pay friends or purchase goods or services.
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(1) Federal Reserve.gov. How We Foster Payment System Safety and Efficiency. Last Accessed January 12, 2025.
(2) Federal Reserve.gov. Money Stock Measures – H.6 Release. Last Accessed January 12, 2025.
(3) Federal Reserve.gov. Currency in Circulation: Volume Last Accessed January 12, 2025.
