Companies keep their money in two main places: commercial bank accounts that handle day-to-day spending, and a portfolio of short-term, low-risk investments that hold everything not needed right away. Where a given dollar sits comes down to three priorities every treasury team balances at once. Can we get to the cash fast enough? Could we lose any of it? Is it earning anything while it waits? Those three questions, weighted differently for different pools of money, explain the whole picture of where do companies keep their money.
Operating Accounts and Overnight Sweeps
The starting point is a pool of cash that can move the same day a payment is due. Companies hold this working capital in commercial demand deposit accounts, the business equivalent of a checking account. Payroll, vendor payments, rent, and tax remittances all flow from here. Instant access is the only thing that matters; interest is an afterthought.
Larger companies rarely let that cash sit idle overnight. Most set up automated sweep arrangements with their banks. At the close of each business day, any balance beyond what tomorrow morning needs gets moved into an overnight interest-bearing vehicle. The usual destination is an overnight repurchase agreement, where the bank effectively sells the company a sliver of a U.S. Treasury portfolio and buys it back the next morning. The company earns a small return, the Treasury collateral keeps risk extremely low, and the cash sweeps back into the operating account when the business day starts.
Companies with accounts at several banks often layer a “zero-balance” structure on top. Subsidiary accounts at different banks automatically concentrate into a single master account each evening, giving the treasury team one pool to manage instead of dozens of scattered balances.
Keeping Deposits Safe Above the FDIC Limit
FDIC deposit insurance covers up to $250,000 per depositor at each insured bank. For a corporation, all of its accounts at one bank get lumped together and insured up to that ceiling, as long as the business is engaged in genuine independent activity rather than existing solely to multiply coverage.1FDIC. Corporation, Partnership and Unincorporated Association Accounts For a company with tens or hundreds of millions in cash, that covers a rounding error.
To protect balances above the limit, corporations use a few strategies. The most common is a deposit placement network. A single bank relationship automatically distributes funds across dozens or even hundreds of other FDIC-insured banks in increments that stay under the insurance cap at each one. The depositor deals with one bank and one statement, but the underlying cash is scattered across the network so every dollar qualifies for full coverage. Companies can also exclude specific banks from receiving their funds.
Public entities and large corporations sometimes require their banks to pledge collateral, typically U.S. Treasury or agency securities, against uninsured deposits. If the bank fails, those pledged securities provide a recovery path separate from FDIC insurance, and an independent third-party custodian holds them so they stay out of the failed bank’s estate. Neither strategy is a perfect guarantee, but together they explain why most companies don’t lose sleep over bank failures even when balances dwarf the insurance limit.
Short-Term Investments for Surplus Cash
Cash a company won’t need for weeks or months gets put to work in short-term, high-quality investments. Under FASB’s accounting standards, anything with an original maturity of three months or less that can be quickly converted to a known amount of cash qualifies as a “cash equivalent” on the balance sheet. Most corporate investment policies restrict the portfolio to instruments carrying top-tier credit ratings, keeping safety ahead of yield.
Treasury Bills
The default safe haven for corporate cash is the U.S. Treasury bill. T-bills sell at a discount to face value with maturities running from four weeks to 52 weeks, and the government’s full faith and credit backs every dollar.2TreasuryDirect. Treasury Bills A company buys a bill for less than face value and collects the full amount at maturity; the difference is the interest earned. Credit risk is essentially zero, which is why T-bills anchor nearly every corporate cash portfolio. The trade-off is that yields tend to be the lowest of anything a treasury team considers.
Commercial Paper
When a company wants a slightly better return and will accept unsecured corporate credit risk, commercial paper fills the gap. It’s a short-term promissory note issued by large, creditworthy corporations, with maturities from overnight to 270 days. Staying at or under that 270-day ceiling keeps the paper exempt from SEC registration.3Federal Reserve. Commercial Paper Rates and Outstanding Summary – About Commercial Paper Only issuers with strong credit ratings can tap the market, so the buyer pool is restricted to high-quality names. Commercial paper is still unsecured debt, though. If the issuer runs into trouble, the holder has no collateral to fall back on, which is why treasury policies usually cap the amount invested in any single issuer’s paper.
Negotiable Certificates of Deposit
Negotiable CDs issued by major banks offer another short-term option. Unlike a retail CD from a local branch, these trade on the secondary market, so a company can sell one before maturity if cash needs change. Yields tend to run slightly above T-bills because the buyer is taking on the issuing bank’s credit risk. Treasury teams manage that exposure by sticking to CDs from the largest, highest-rated banks.
Money Market Funds
Institutional money market funds are where the largest share of corporate cash often ends up. These funds pool money from many investors to buy a diversified basket of T-bills, commercial paper, repurchase agreements, and other short-term debt. Instead of a treasury team assembling individual instruments piece by piece, a single fund handles the whole portfolio.
SEC Rule 2a-7 imposes tight guardrails on what these funds can hold, limiting individual maturity, weighted average maturity, and weighted average life. Government money market funds, which invest almost entirely in Treasury and agency securities, are allowed to maintain a stable $1.00 net asset value per share. Institutional prime money market funds, which hold corporate debt, must use a floating NAV that reflects the actual market value of the portfolio.4eCFR. 17 CFR 270.2a-7 – Money Market Funds That distinction matters to corporate treasurers. Many prefer government funds precisely because the stable NAV simplifies accounting and avoids small fluctuations in reported cash balances.
Some companies hold a portion of reserves in slightly longer instruments like U.S. Treasury notes when the cash isn’t earmarked for near-term spending. Extending duration captures a higher yield but introduces interest-rate sensitivity, so the treasury team calibrates maturity against projected cash flow needs.
Cash Held Overseas
Multinational companies generate cash in dozens of currencies across dozens of countries, and it doesn’t all flow back to headquarters. Foreign subsidiaries hold local-currency cash to cover their own operating expenses, and moving those funds home involves both foreign exchange risk and tax rules.
Before the 2017 Tax Cuts and Jobs Act, U.S. companies famously stockpiled hundreds of billions overseas to avoid the tax hit that came with bringing foreign earnings home. The TCJA largely ended that dynamic by shifting the U.S. to a modified territorial system. Under Section 245A, a domestic corporation that owns at least 10% of a foreign subsidiary can deduct the entire foreign-source portion of dividends it receives, effectively making repatriation tax-free at the federal level.5Office of the Law Revision Counsel. 26 US Code 245A – Deduction for Foreign Source-Portion of Dividends Received by Domestic Corporations From Specified 10-Percent Owned Foreign Corporations
Foreign cash isn’t untaxed, though. The Global Intangible Low-Taxed Income rules under Section 951A require U.S. shareholders of controlled foreign corporations to include their share of the subsidiary’s net tested income in their own gross income each year, whether or not any cash is actually distributed.6Office of the Law Revision Counsel. 26 US Code 951A – Net CFC Tested Income Included in Gross Income of United States Shareholders A partial deduction under Section 250 softens the tax bill on that income.7Office of the Law Revision Counsel. 26 USC 250 – Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income
With the repatriation barrier largely gone, decisions about where to hold cash now center on foreign exchange exposure and local yield opportunities. Companies use cash pooling to group subsidiary balances for interest optimization, and netting arrangements to offset intercompany payables against receivables, cutting the number and cost of cross-border transfers. The underlying investments are the same low-risk instruments used domestically: T-bills, commercial paper, and money market funds, just denominated in the relevant local currency.
The Rules That Govern These Choices
Corporate cash doesn’t get invested on a whim. Publicly traded companies maintain a formal investment policy statement approved by the board or a finance committee. The document spells out which instruments the treasury team can buy, the maximum maturity allowed, minimum credit ratings, concentration limits per issuer or counterparty, and how much must stay in overnight-liquid form at all times. Anything outside the policy requires explicit board approval.
The Sarbanes-Oxley Act adds accountability for companies listed on U.S. exchanges. Section 404 requires management to maintain internal controls over financial reporting, and cash management sits inside that mandate. In practice, that means segregation of duties (the person who authorizes a payment can’t execute it), regular reconciliation of bank and investment accounts, access controls over treasury systems, and internal audits that test whether the controls actually work.
Counterparty risk is the other discipline shaping where cash goes. Even a theoretically safe instrument creates exposure if too much sits at a single bank or in one issuer’s paper. Most policies set hard dollar limits per counterparty, with higher limits for institutions carrying stronger credit ratings, and treasury teams monitor those exposures in real time.
How It Shows Up on the Balance Sheet
On the balance sheet, a company’s liquid assets sit in the current assets section, usually as a single line called “Cash and Cash Equivalents.” Cash means currency on hand and money in demand deposit accounts. Cash equivalents are those short-term investments with original maturities of three months or less: T-bills, commercial paper, money market fund holdings, and similar instruments. Grouping them together reflects the accounting reality that a 30-day T-bill is almost as liquid as a dollar in a checking account.
A separate line item, “Restricted Cash,” captures funds the company legally cannot spend on general operations. Escrow accounts tied to pending litigation, cash pledged as loan collateral, and deposits held to satisfy regulatory requirements all fall here. The distinction matters because analysts rely on the unrestricted figure to gauge whether a company can cover its short-term obligations. A company showing $2 billion in total cash but $1.5 billion of it restricted is in a very different position than the headline number suggests.
Dormant cash creates a different kind of problem. If a company fails to initiate any activity on a bank account for a period that varies by state, typically three to five years, the bank is required to turn those funds over to the state through a process called escheatment.8Office of the Comptroller of the Currency. When Is a Deposit Account Considered Abandoned or Unclaimed? Treasury teams track account activity specifically to prevent this, because recovering escheated funds after the fact is slow and bureaucratic.