Best place to keep money in the short-term?

November 2, 2005 1:17 PM

My husband and I will, with any luck, be buying a house next year. What should we do with our money in the meantime?

First off, I'm asking this anonymously as I would rather not advertise the obtaining of large sums of money. But anyway:

We will be in the market for a house roughly next summer, after I finish grad school. My dad passed away a number of years ago, leaving me a decent chunk of money. Although some of it has gone towards school, etc., I will be receiving the final installment of the trust in at the end of this year. A portion will again go towards school and some debt we've accumulated, but $20,000 at the very least will be put away towards a down payment (without disclosing location, I should add that $100,000 will get us a perfectly decent house in our area).

Where should we store this money in the meantime? Is it worth exploring any other options besides just socking it away in our savings account until the summer?

posted by anonymous to work & money (10 comments total)

Best you can do is stick it in a six or twelve month CD. You want low-risk, non-volatile savings.

If you have a trust or other large sum of money you should probably be seeking out the advice of a financial planner anyway. They can advise you on this sort of thing.
posted by bondcliff at 1:22 PM on November 2, 2005

IANAFinancial planner, but my suggestion would be to find a high interest savings account (I've had good experience with online bank INGDirect and have also heard recommendations for Emigrant Savings Bank's online offering) and put it there. Especially with that much money, the difference in the 3 or 4% you get there vs. the, what, .5 or 1% you get at brick-and-mortar places is fairly significant -- at least a couple hundred bucks, right?

Depending on how long you want to store it (I'm guessing around 6 months, from your post?), it might also be worth looking at a CD -- assuming you don't need to have the money be "liquid" in the meantime. The rates on those, though, would probably be comparable to ING and Emigrant regular savings accounts. The penalty for early withdrawal is a downside with those, too -- though at least it would discourage you from thinking about spending "just a little" here and there.

I don't know of any other safe/stable/low-risk/relatively short-term alternatives. But hey, maybe I'll learn something new...
posted by SuperNova at 1:26 PM on November 2, 2005

For a short term investment, you want to keep your money in an investment vehicle where the principal is completely safe. This low level of risk will naturally translate into a fairly low interest rate. However there are investment vehicles that are virtually as risk free as a savings account and with higher interest rates. However, on $20,000 the difference of 2% in interest is only going to make a difference of about $400 in a year. But that is still something. Your best bet is likely a money market account or a CD. The best rates are usually found at online banks. The best place to go is bankrate.com. From a quick view of their site, it looks like you could get an interest rate of about 4-4.5% on that amount of money. On preview, ditto with what has already been said.
posted by bove at 1:29 PM on November 2, 2005

One other thing you should know-do NOT buy a car between now and the time you close on your home-this affects qualifying on your mortgage. The minute you do close on your house, go ahead and get that car if you want it.
posted by konolia at 1:49 PM on November 2, 2005

The first thing you need to do is decide what you primary goal is. The above advice is sound if your first and overriding objective is to preserve your capital (not lose any of your money).

However, if you have any desire at all to try to make a bit more than 4-4.5% (and I emphasize try here, because there is certainly no guarantee that you will), then take a look at the advice in these threads.

If I were in your position, I would put a majority (say, 80%) of the money in a CD, and take the remaining 20% and put it in a mutual fund and/or some individual stocks. Pro: you might make a bit more $$$ with your windfall. Con: You might well lose some or all of this portion of your money. But then, I have a pretty high risk tolerance.
posted by googly at 2:59 PM on November 2, 2005

I'm with bondcliff. Check out www.bankrate.com and find the best deal on 12 month CDs. $100,000 per bank is best, because it'll be insured.
posted by small_ruminant at 3:05 PM on November 2, 2005

Check out I-Bonds. No transaction costs to cut into your principal (unlike a mutual fund or stocks), the principal and earnings are guaranteed, you can withdraw in 1 year, and there no state/local taxes to pay on the earnings. The current rate is 6.73%.
posted by nakedcodemonkey at 6:18 PM on November 2, 2005

Just remember that you will need a large chunk of it as cash the moment you decide to put down a deposit - well before actual closing.
posted by exogenous at 6:26 PM on November 2, 2005

Oh and if you've got some leeway on when to pay off the rest of the education bills, you can keep even more of the I-Bond earnings:

Under the Education Savings Bond Program you may be able to exclude some or all I Bond interest from Federal income tax when you pay qualified higher education expenses at an eligible institution or State tuition plan in the same calendar year the bonds are redeemed.*
posted by nakedcodemonkey at 6:29 PM on November 2, 2005

With a year to go you're in the perfect amount of time to get serious about your credit score. Go hit up Art of Credit and learn all the ins and outs. There's lots of them and some take a goodly time to deal with.

Second, revise a HUGE flaw in your thinking.

A portion will again go towards school and some debt we've accumulated (bolding mine)

NO! Bad debtor! BAD! You need to put it towards ALL the debt you've accumulated since by your statement you've indicated that you do not yet own a house. Meaning none of that debt's interest is tax-deductable like your house's will be. If by 'school' you mean school loans you probably should be putting it towards that last since it likely has a lower interest rate.

You should also take this opportunity to break the cycle of buying cars on credit if you have developed it. Those things are already a giant money sinkhole in their first year as it is, paying a percentage premium on top of that for instant gratitification rather than paying cash is good money after bad. Set yourself up a car fund and make payments into it as if you were making payments on a car loan.
posted by phearlez at 10:18 AM on November 3, 2005