As was foretold, we've added advertisements to the forums! If you have questions, or if you encounter any bugs, please visit this thread: https://forums.penny-arcade.com/discussion/240191/forum-advertisement-faq-and-reports-thread/

[US Banks] I have some money, now what?

LewishamLewisham Registered User regular
edited July 2011 in Help / Advice Forum
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?

Lewisham on

Posts

  • LykouraghLykouragh Registered User regular
    edited July 2011
    There are not good liquid, short term, higher than 1% investment options for someone living in the U.S. right now. If your savings account is anywhere near 1%, you should probably just leave it there.

    Lykouragh on
  • kaliyamakaliyama Left to find less-moderated fora Registered User regular
    edited July 2011
    You're not going to get a guaranteed fixed-interest rate return on your money without giving up liquidity. An investment account would allow liquidity but "i'm going to invest my savings in the stock market" doesn't strike me as a particularly wise approach. You might try investing a third and saving the rest depending on how much of an emergency fund you need.

    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.

    kaliyama on
    fwKS7.png?1
  • khainkhain Registered User regular
    edited July 2011
    Lykouragh wrote: »
    There are not good liquid, short term, higher than 1% investment options for someone living in the U.S. right now. If your savings account is anywhere near 1%, you should probably just leave it there.

    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.

    khain on
  • ThanatosThanatos Registered User regular
    edited July 2011
    Lewisham, are you planning on sticking around here? Or are you headed back to the UK after you're done with your degree?

    Thanatos on
  • LewishamLewisham Registered User regular
    edited July 2011
    Thanatos wrote: »
    Lewisham, are you planning on sticking around here? Or are you headed back to the UK after you're done with your degree?

    I'm here for life, I'm married to an American now. Green card soon!

    Lewisham on
  • LewishamLewisham Registered User regular
    edited July 2011
    Alright, looks like I should just leave it where it is for now. Thanks!

    Lewisham on
  • DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    edited July 2011
    What bank offers a >2% interest rate on checking?

    Deebaser on
  • Eat it You Nasty Pig.Eat it You Nasty Pig. tell homeland security 'we are the bomb'Registered User regular
    edited July 2011
    I would do what kali suggested; figure out the amount you think you need to have around as contingency money, then figure out a long term investment for the rest.

    Eat it You Nasty Pig. on
    NREqxl5.jpg
    it was the smallest on the list but
    Pluto was a planet and I'll never forget
  • kaliyamakaliyama Left to find less-moderated fora Registered User regular
    edited July 2011
    Not sure it's a good sign that Archer is endorsing my advice..

    kaliyama on
    fwKS7.png?1
  • SeñorAmorSeñorAmor !!! Registered User regular
    edited July 2011
    What about a money market account?

    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%.

    SeñorAmor on
  • khainkhain Registered User regular
    edited July 2011
    Deebaser wrote: »
    What bank offers a >2% interest rate on checking?

    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.

    khain on
  • CrovaxanCrovaxan Registered User regular
    edited July 2011
    If i were you i'd find a credit union and take out multiple CDs. you want to make each CD the amount you can live off of for a month or so. and then make them revolving so you either always potentially have access to money each month or every so often(3 months in my case). i got my CDs years ago so they have really good interest rates but i just checked online and you can get 12 month ones for 1.74% which beats 1%.

    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.

    Crovaxan on
    1850973-1.png
    Crovax.436 Steam: Crovaxan
Sign In or Register to comment.