Cash and cash equivalents are short-term (readily accessible or mature within one year) and low-risk assets. They may or may not be interest bearing. They have the lowest risk of losing capital (absolute value) but they have the highest risk of losing purchasing power due to inflation.
Cash and cash equivalents are available in the form of currency (cash), bank accounts (e.g. checking account and savings deposit), certificates of deposit (time deposit), Treasury bills, and money market deposit accounts, and money market funds. They are also available in domestic currency and foreign currencies
I recommend saving 1-6 months of living expenses in cash and cash equivalents as emergency cash reserve, but I do not using them as long-term investments.
Currency (cash)
Currencies are the most liquid instrument available, but they are not interest bearing. There is no risk of loss from the market, but there is risk of loss due to physical loss (e.g. theft, degradation).
Bank accounts (checking account and savings account)
Bank accounts, such as checking accounts and savings account, can hold cash for you and may or may not be interest bearing. In US, your money is guaranteed by FDIC for up to $100,000 per individual, so there is no risk of capital loss below the insured amount.
When using bank accounts, watch out for banking fees and charges. Monthly account keeping fee can literally take money away from you until your account balance is zero. Watch out especially for interbank ATM fees - use a bank with ATM in locations you frequent, or the interbank ATM fees will eat away your money every time you make a withdrawal.
Online bank accounts often have no or low bank fees, and give you high interest rates. Now that you can make most bill payments online, you should consider opening and using online bank accounts.
Certificates of deposit (time deposit)
Certificates of deposit (CD, or time deposit) are instruments for depositing money in banks (or other financial institutions, such as credit unions) for a specific period of time at a fixed interest rate. Principal is returned at maturity, while interests may be paid out as accrued or accumulated until maturity. Similar to bank accounts, certificates of deposit are low risk and are covered by FDIC for up to $100,000 per individual.
Treasury bills
Treasury bills are short-term securities issued by the US Treasury. These are the "safest" form of investment because US Treasury bills have the full backing of the government, which can print more money as needed (though not without flow-on effects).
Money market deposit accounts (MMDA)
Money market deposit accounts (MMDA) are deposit accounts with high interest rates. These account usually have more limitations than regular checking or savings account, but the high interest rates may be worth the inconvenience. Money deposited in these accounts are low risk and are insured by FDIC.
Money market funds
Money market funds are mutual funds that invest in money market short-term securities, such as Treasury Bills and commercial paper. Money market funds are not insured by FDIC and can potentially lose value, though they are still considered low risk investments.
Note on foreign currencies
Cash and cash equivalents are also available in foreign currencies, but they have the additional risk of currency exchange rates. Even if the absolute value of the foreign currency remains the same, the equivalent value in domestic currency may be higher or lower depending on the latest currency exchange rate.
Sophisticated investors may invest in foreign currencies and earn profits from their bets, but I do not have sufficient knowledge to comment on the valuation of foreign currencies and how to make correct bets.
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