I have $30,000 burning a hole in my pockets.
July 2, 2009 4:11 PM   Subscribe

Where is the best place to put my $30,000 as I slowly withdraw from it over the next 2 years to pay for Grad School.

As of today, I saved exactly $30,000. I will quit my job in a month, and I'm starting classes in the Fall. I won't have any other source of income for two years, besides school loans and these savings.

I currently have them in a WAMU Online Savings account, which was paying 4% interest before, but now is paying next to nothing.
posted by brenton to Work & Money (8 answers total) 7 users marked this as a favorite
Bankrate.com is the go-to site for finding the highest interest savings and CD accounts; the best rates there right now are around 2%.
posted by phoenixy at 4:44 PM on July 2, 2009 [1 favorite]

If you're sure that you won't need most of it for a year or two, stick it in short-term CDs (6 months - 2 years). They'll generally return slightly better rates than savings accounts.
posted by chrisamiller at 4:50 PM on July 2, 2009 [1 favorite]

I'm a long way from being a financial advisor, but I wonder if you shouldn't consider a 529 plan? Most people start them for their kids, but there's no reason not to have one in your own name, and in some states you'll get a tax deduction for your contribution. If you can find one with investment options that are ultra-safe, it might make sense for you.
posted by Pater Aletheias at 4:58 PM on July 2, 2009 [1 favorite]

I would keep it in cash, either in the form of a savings account deposit, or short-term CDs. These are the two most liquid forms of assets, and CDs at major banks are generally safe.
posted by dfriedman at 5:04 PM on July 2, 2009

Short-term interest rates are very low right now. The two year US treasury yield is just under 1%. Some one year CDs are up to 2%, but mostly with troubled banks (like Ally Bank, aka GMAC). You'd have FDIC protection, but you're still locking up that rate for a year.

I think you're better off choosing a high yield savings account. You can get pretty close to the CD rates, but you aren't locking in your funds or the rate. So if rates start to rise, you are free to reinvest your money elsewhere.

Savings deposit are very important for banks, especially now, so there is a reason to pay a premium for them. Some fairly solid institutions like HSBC and Wilmington Trust (via WTDirect) are offering decent rates. Here's a list.

The top name on that list is Flagstar Bank. They're a troubled Michigan bank, but they just got $250MM of TARP money plus $350MM of private equity money from MatlinPatterson. Don't take my word for it, but I think that's a comforting sign. Plus, it's still FDIC insured.

There are plenty of government bond funds out there, but I don't think they offer a better value over the savings accounts. In order to get a better yield, you need to find a fund that invests in agency mortgage paper (Fannie Mae, Ginne Mae, Freddie Mac). These are guaranteed by the government against principal lost, but if mortgage refinancings spike, you could still experience losses. FWIW, a Ginne Mae fund like this is yielding almost 4%. You could consider putting a portion of your money in something like that--but since we're talking small absolute dollars here I wouldn't bother. I'd rather put my money in a sure thing (savings account) and just hope rates rise.

Corporate bond funds, which take credit risk in addition to interest rate risk, would be totally inappropriate for this.
posted by mullacc at 5:06 PM on July 2, 2009

Not all corporate bonds have interest rate risk.

Bonds that have interest rate risk are those whose interest rate fluctuates over the period of time that the debt is outstanding.

In any event, it is correct that corporate bonds are more risky than either cash or CDs and would not be appropriate for the OP's purpose.
posted by dfriedman at 5:15 PM on July 2, 2009

You are going to draw it down over 2 years so it needs to stay liquid and still get a decent interest rate. That narrows your search down to CDs and High Interest savings accounts. Online high interest savings account tend to stay competitive with CDs on a short term basis...and at most you'll be giving up a few basis points to keep your money highly liquid. Go with a no-fee online high interest savings account.

Keep in mind when withdrawing money from these accounts there can sometimes be a few days of "float" in that it might take some time (business days) before your money comes through. This is certainly true of transferring money in between a high interest savings account and a checking account (unless they are with the same institution).

Although the rates aren't always the ABSOLUTE highest, I have had good luck with both ING and Emigrant Direct. I recommend the following:

1. DollarSavings Direct. This is under the umbrella of Emigrant Bank. It currently offers a 2.00% interest rate. The caveat is that you need to keep a cushion of 1000 in the account AT ALL TIMES. This won't be an issue for you.

2. Emigrant Direct. Offering a 1.55% interest rate currently. Always has very competitive rates. The website looks a bit ghetto...but I have used them for years and have been very happy with customer service.

3. INGDirect I have a checking account with them as well as several savings accounts. I think they are wonderful. Good rates, better customer service, no fees, very honest.

oh...almost forgot: this is a great site that keeps tabs on online savings accounts:

High interest online no-fee savings account is the way to go. Don't worry about getting the ABSOLUTE highest rate...find a decent rate with good customer service and be done with it. Enjoy Grad School!
posted by jnnla at 5:42 PM on July 2, 2009

Bonds that have interest rate risk are those whose interest rate fluctuates over the period of time that the debt is outstanding.

WTF are you talking about? Bonds with fixed coupons have interest rate risk because the value of the bond will change depending on the prevailing interest rate. Floating rate issues, whose interest rate will fluctuate with the benchmark rate, have little interest rate risk, assuming there's no embedded call option.

But a corporate bond fund will certainly face interest rate risk because fixed rate bonds dominate that market.
posted by mullacc at 9:25 PM on July 2, 2009

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