Sort your money into layers first
Most people open a yield page and immediately compare rates. That is the wrong order. The rate decides how much extra you make; what decides whether you end up in a painful spot is whether the money can actually stay there that long.
Flip it: sort your money into layers first, then take each layer shopping. Sorting needs no arithmetic, only honesty — and it prevents forced exits better than any product comparison.
Why product selection is step two
Products really differ in only two ways: whether you can withdraw at any time, and what it costs when you cannot. Those differences do not map to “better” or “worse” — they map to which layer of money a product suits.
If money is likely needed within three months, no locked rate makes it the right home: in the bad case you either cannot get it out or you forfeit interest getting it out, handing back the spread you earned. What a lock-up actually costs works that arithmetic.
The mirror mistake: money you have already decided not to touch for a year, parked entirely in instant-access products, is paying for freedom you will not use. Opposite errors, same root cause — comparing rates before sorting.
Three layers
- Layer one: needed at any time. Living costs, emergencies, and anything you cannot rule out wanting. Liquidity is the only requirement here; yield is a bonus.
- Layer two: possibly needed within six months. Planned-but-not-fixed spending, and money waiting for a price you want to buy. This layer needs “reachable, without it hurting much”.
- Layer three: definitely idle. The part you have genuinely settled will not be touched for a year or more. This is the correct home for locked products.
There is no standard split between the three. It depends on how stable your income is, whether you have other emergency sources, and how much uncertainty you tolerate. One rule does generalise: when layer one is thin, do not patch it with “I can always redeem early” — that builds your emergency plan on an action that has a price.
How to place a given sum
Three questions, each needing only an honest answer:
- If I had to spend it tomorrow, what would I do? If the answer is “move something else”, it can sink a layer. If the answer is “take this out”, it is layer one.
- In the next six months, is there anything I already know I will pay for? Deposits, tuition, travel, replacing equipment — known spending should not be locked.
- If the market fell to a certain price, would I want to buy? If yes, the money earmarked for that is layer two, not layer three. Plenty of people lock it away and then cannot move when they most want to.
The third gets skipped because it is not “spending”. From an availability standpoint it is identical: you need the money and it is not there.
The idle fund checker turns these questions into checkboxes if you want to run through them quickly.
What each layer should hold
Once sorted, the choice narrows sharply:
- Layer one: instant-access products only. A lower rate is the normal price here; do not trade liquidity for a point or two.
- Layer two: shorter fixed terms are on the table, or splitting across staggered maturities. What matters is confirming the exit rules and cost for the “if I need it” case — read the terms on the page rather than assuming from experience.
- Layer three: this is where lock-up opportunity cost is lowest, so longer-term spreads finally mean something.
Notice that none of this says a product is good or bad. The same product can fit layer three perfectly and be a mismatch for layer one. Products are not good or bad; they are matched or mismatched.
Three ways sorting goes wrong
- Treating “I should be able to leave it” as “I have decided to leave it”. The commonest layer-three error. The test is not willingness but whether you have another option if you do need it.
- Never re-sorting. Income changes, plans change, markets change, and money moves between layers. Re-run the questions at least whenever a large expense appears on the horizon.
- Confusing sorting with spreading. Two different jobs: sorting handles “when do I need this money”, spreading handles “what if one place goes wrong”. Do both; do not substitute one for the other.
The spreading side has its own article: should you split one sum across products.
This is a planning framework. It recommends no specific product and is not investment advice. Withdrawal timing, early-exit rules and their cost are whatever the official product page and terms say when you open them. Yield products can lose principal; rates float and past figures do not predict future ones.
Common questions
How much should layer one hold?
There is no universal percentage. It depends on income stability, whether you have other emergency sources such as credit or family support, and your tolerance for uncertainty. One usable signal: if you would need to redeem a locked product early to handle a surprise, layer one is too thin — building an emergency plan on an action that has a cost is itself a risk.
Which layer is money set aside to buy a dip?
Layer two. It is not spending, but in availability terms it behaves like spending: you must be able to reach it when the moment comes. Many people treat it as “not needed for a long time”, lock it, and then cannot act when they most want to.
How often should I re-sort?
No fixed schedule, but three triggers: a change in income or work situation, a new large expense on the horizon, and having already spent part of one layer. Re-running the three questions at those moments beats a monthly calendar review.