Not an IRA, I know that much.

August 14, 2009 9:32 AM

I want to start a dedicated bank account -- but what specific kind of account?

At some point in the future -- possibly this year -- I'll be getting a portion of an inheritance from my grandfather. I've already decided that since he was a MAJOR traveler -- and I'd like to be -- that I want to take a portion of however much I get and start a new account to fund all my travel for the next couple years (it'd be a sort of legacy gesture, plus...money for travel! W00t!).

The question is: what kind of account should I be starting? Ideally, I want something that gets the highest possible amount of interest, but also lets me pull out a chunk whenever I need (maybe just once a year) for plane tickets and such, without getting penalized by any "you can only withdraw money once per year/decade/whatever" fees. I'd feed it once in a while, if I have anything left over from my regular savings or get little windfalls, but that would be infrequent.

So should this be a savings account? A second checking account? A money market? Some other kind of account that I in my ignorance am not aware of?...I'm probably going to keep it all at my main bank just for convenience's sake, unless there are good reasons/better interest with some other source.

Thanks.

posted by EmpressCallipygos to Work & Money (11 answers total)

Of those you mentioned, money market accounts generally yield the best. They have withdrawal limits of something like 6 per month.
posted by torquemaniac at 9:38 AM on August 14, 2009

Ideally, I want something that gets the highest possible amount of interest, but also lets me pull out a chunk whenever I need (maybe just once a year) for plane tickets and such, without getting penalized by any "you can only withdraw money once per year/decade/whatever" fees. I'd feed it once in a while, if I have anything left over from my regular savings or get little windfalls, but that would be infrequent.

So, it sounds like you want as high interest as possible, no risk, and infrequent withdrawals around once a year or more. With those kinds of parameters, you can't do much better than a high-yield savings account. Unfortunately due to the economy right now the rates are extremely low, so you'll only be able to get an annual return of around 1-3%. The good news is that any reputable bank will have FDIC insurance for your account, so even if the economy gets worse you are unfortunate enough to pick a bank that ends up going under you won't lose any money.

The best place to find the latest rates is the Bank Deals blog, but note that since the rates can change at any time the best account now might not be the best account a year from now. In general online-only savings accounts will have higher yields, and since you won't be withdrawing very often that might be a good solution for you.
posted by burnmp3s at 9:52 AM on August 14, 2009

I echo the people who suggest a high-yield savings account. You also want something that allows you to easily set up automatic deposits and withdrawals between this account and your checking account, and you want make sure you don't have any monthly fees. At the moment, I'm using E*Trade Bank for my savings account (unfortunately, the interest rate has fallen from its peak a few years ago). I have money transfers on a schedule from my checking account with a local bank, and then I make transfers back to my checking account when I have a "saved expense" I'm paying for. You sound like you might use it a bit less often than I do, so you might want to maximize your interest rates irrespective of accessibility, but I find I get good peace of mind out of a savings account that has a good online interface and easy integration with my checking account and Quicken.

One thing to keep aware of is that many money market accounts are pitched as high-interest rate accounts when in fact the interest rates are only "introductory" and end up only providing a token amount of interest after the introductory period is over.
posted by deanc at 10:10 AM on August 14, 2009

Dean, I like the idea of being able to transfer between accounts, but forgive me for the confusion -- you say that you have scheduled transfers. Do they HAVE to be regularly scheduled, or can it be an "at will" kind of thing?
posted by EmpressCallipygos at 10:25 AM on August 14, 2009

High-yield savings or money market, whichever gets you the best rate. Ally Bank (formerly GMAC Bank) has good rates, and I heard that their ACH transfers (which you will use to move money from your main checking account to the money market account) are very fast compared to other online banks.

You might also look for banks that have account opening bonuses, as in the short term, these can boost your return significantly.
posted by kindall at 10:25 AM on August 14, 2009

Talk to a financial planner -- If you get $10,000 and put it into high interest savings, make a few hundred bucks in interest and spend a lot on travelling, you might have a nasty surprise when you file taxes next spring, unless you have some help minimizing your tax exposure through something like a IRA or something with deductible contributions. If the inheritance is large enough that it really makes that much difference in interest, you're not going to spend all that on traveling anyway - put a good chunk into a retirement account, deducting it on your taxes, while leaving enough to do your fun things. You don't want to be happy that you're getting more interest, then find you need to spend all your interest and then some to pay the IRS.
posted by AzraelBrown at 10:27 AM on August 14, 2009

In my particular case with E*Trade Bank, you can set up transfers to/from your checking account with another bank either on a scheduled basis or a one-off, and you can even cancel one of the scheduled transfers without having the rest of the future transfers get affected (eg, canceling June's deposit while July's-December's remain on schedule). I'd personally steer clear of any account that didn't offer all of these only options and flexibility, but your needs may be different.
posted by deanc at 10:31 AM on August 14, 2009

I'd also recommend a high-yield savings account, though rates aren't too great right now due to general economic reasons. I use DollarSavingsDirect, which is run by Emigrant Bank in NY. You can schedule withdrawals and deposits online via ACH to and from your checking account. Since it's ACH it's not instant, they are generally done overnight so it's a next business day sort of thing. You can schedule transfers to happen regularly or as a one-off.
posted by reptile at 11:20 AM on August 14, 2009

I recently opened a high-yield savings account at Ally bank as a result of asking a related question here a couple months back. Speedy transactions, and reasonable rate. As mentioned above, the economy sucks, so no "great" rates are out there. But sooooo much better than the 0.01% APY I was getting at Chase.
posted by Precision at 12:15 PM on August 14, 2009

For the record, since Azrael brought it up -- the bulk of said money, whatever it is (Hell, I don't even know -- for all I know I wouldn't even be able to afford to do this in the first place) is going to be used to bulk up an IRA and kill debt, which to the best of my knowledge would let me dodge tax issues. Only about two grand TOPS would be going into this special travel piggybank (I actually prefer budget travel and youth hostels, so this wouldn't need to be a big account at all anyway).
posted by EmpressCallipygos at 1:20 PM on August 14, 2009

I use an ING Direct savings account for travel funds. I transfer money out into my local account before I travel.

Re taxes: When I inherited money, I didn't have to pay income tax on it. (If the estate is big enough, the estate will pay taxes--you might find out if that happened.) I did pay tax on the interest it earned when I put it somewhere smart, but the taxes on the interest ate only a portion of the interest.
posted by PatoPata at 1:21 PM on August 14, 2009