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[US Banks] I have some money, now what?
Lewisham
Registered User regular
Registered User regular
For the first time in my grad student life, I find myself with some extra money (thanks Google internship). Thus far, I have basically been just about breaking even each month. When all is said and done, I'm thinking I'll have around $10-12k.
I want to do something smart with the money. Right now, it is sitting in a Bank of America savings account. The interest rate is ~1% or less. This is not what I would term "making my money work for me."
I am not familiar with savings options in the US, like CDs and Roth IRAs and all that jazz. The caveat is that I would still need access to my money, as I'll be going back to a non-elastic income again. In the event of an emergency, I could pay in my credit card, but I would need to extract the money to pay it off in < 1 month.
What are my options?
I want to do something smart with the money. Right now, it is sitting in a Bank of America savings account. The interest rate is ~1% or less. This is not what I would term "making my money work for me."
I am not familiar with savings options in the US, like CDs and Roth IRAs and all that jazz. The caveat is that I would still need access to my money, as I'll be going back to a non-elastic income again. In the event of an emergency, I could pay in my credit card, but I would need to extract the money to pay it off in < 1 month.
What are my options?
Lewisham on
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The way I am handling this issue is pretty stupid. I am trying to deleverage myself as quickly as possible, so am putting most of my money into my student loans. My emergency fund is about $2k, plus the month of vacation time I have accrued. That's enough to keep me going about 3 months if I was unemployed. If I ever got in serious trouble, I would have to take out the $20k or so I have in my IRA. I would pay a normal income tax withholding plus a 10% penalty. For me it sort of makes sense because if I ever got in serious trouble I would be in a lower tax bracket such that the 10% penalty would be offset, but it's still not very sensible. It also keeps me from spending the money or putting it towards loans, so there's a forced-willpower aspect to things too.
You can get at least double that rate in a rewards checking account at multiple banks. It does take some work, generally 10-15 debit transactions and either 1 direct deposit or bill pay and the there's generally a cap somewhere between $10k - $25k, but given that most people do those things anyway it's not that hard to take advantage of it. I'm not sure you can find one in every area of the country, but in the two places I've lived on each coast I've had one with a interest rate of 2% or better.
Other than that you don't really have any options. The point of an emergency fund is to have it when you need it and that runs contrary to investing which is basically accepting risk to get a higher rate of return. You could invest in the stock market, or basically anything else, which is fairly liquid but you run into the problem where not only are you accepting the normal risk of the stock market there's also added risk that you may be forced to sell at a bad time to cover expenses not to mention that you can lose money. If this is an emergency fund, which from your description is what it sounds like, then you want to keep it someplace where you can't lose it and thus your rate of return is going to be abysmal and the options are pretty much savings accounts and the like.
I don't think any has covered CDs yet, but basically a CD is where you give the bank your money for X time with Y interest rate so you wouldn't be able to easily access the money. I think you can break it, but you pay penalties and CD rates are also probably worse than the 1% you get in a savings account.
A Roth IRA, and a normal IRA, aren't actually investments, but are instead retirement accounts that give tax benefits that have limited contributions per year and then you get to decide within limitations where to invest the money. As kaliyama explained you pay penalties if you need to withdraw so while I would strongly recommend putting money in a either IRA as soon as you can you shouldn't do so with your emergency fund.
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Usually they have a minimum balance -- which you're clearly past -- and they offer decent interest rates and no penalties for removing money (assuming you stay above the minimum). I think the one my wife and I have returns 6%.
Any of these. I'm sure you can find others as well based on location since the bank I happen to use isn't on that list.
In the event you do need money and there's not time to wait for a CD to open up you can take a loan out against it, my bank only charges me rate+2% which is amazing.
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