Phil and Kendra Gonzalez graduated from college last May and were married in December. Both work for the same high-tech company as software designers, and their combined take-home pay is $5,200 per month. With monthly expenses that average only $3,000, theyve been able to accumulate $14,000 over the last year in a joint savings account that currently pays 3 percent interest. They also generally keep a little more than the $500 minimum balance in a checking account that pays no interest. If their checking account drops below the $500 minimum in any given month, the bank assesses a monthly fee of $10. This happens to them about once every three months. At present, Phil and Kendra have no investment accounts other than their savings account and their employment-based retirement funds. Phil is trying to talk Kendra into putting $5,000 of their savings into a higher-interest CD and another $5,000 into a stock mutual fund. He has found an online bank that is offering 6 percent interest on five-year CDs, and he has been investigating several stock funds that have had good returns over the last year. Kendra is not sure about what they should do. To investigate their options, she calls their current bank and asks about cash management account alternatives that might provide them with better interest earnings. The bank officer suggests that they consider moving their checking to an interest-earning account that pays 2 percent per year and carries a $1,000 minimum balance. He suggests spreading their investments into several CDs with increasing maturities. The five-year CD at this institution pays 5.75 percent.

Question: How much do you think the Gonzalezes should hold in liquid accounts? Explain your reasoning.