We theoretically and empirically show that in the presence of a time-varying cost of capital(COC), firms save cash from external capital when the firm-specific COC is low to hedge against the risk of underinvestment due to a higher COC in the future. This hedging motive drives the sensitivity of cash savings to the COC in both financially constrained and currently unconstrained firms. This sensitivity is especially pronounced among firms with a stronger correlation between their COC and financing needs for future investments. Cash savings are more sensitive to the cost of equity than to the cost of debt.