Where to park $12,000 for 5-8 months?
June 27, 2014 8:36 PM   Subscribe

I have a sum of about $12,000 of which I will probably need to access about one-half in November and the other half around February or March. It's currently sitting in a savings account where it's making negligible interest. Is there something better I could do with it in this very short time frame?

Looking at current interest rates for CDs and money market funds it looks like the return on those wouldn't be significantly higher than if I just leave the money in my savings account. Something like an EFT might yield a higher return, but it would also be riskier, and I don't want to gamble with this money. Is there any option I'm overlooking which would be both fairly safe and more profitable than what the money is currently doing (i.e. nothing)?
posted by zeri to Work & Money (15 answers total) 5 users marked this as a favorite
Bonds, mutual funds. Buy a ring a propose to someone at the end of the six months.
posted by frednorton at 8:40 PM on June 27, 2014 [1 favorite]

Short answer: No, there's nothing.

Longer answer: There's never much return in anything without risk, especially now that interest rates are so low that there's no more 5% savings account to be had online. The stocks you'd get with a mutual fund represent a much higher risk level than you can sanely tolerate given your timeline.
posted by Tomorrowful at 8:41 PM on June 27, 2014 [8 favorites]

Fees, taxes, risk. The answer is no.
posted by phaedon at 9:11 PM on June 27, 2014 [1 favorite]

posted by Justinian at 9:20 PM on June 27, 2014 [2 favorites]

That's what I thought. Thanks, all!
posted by zeri at 9:43 PM on June 27, 2014

Do you rent or own?

Talk to your landlord if you rent. Can you pay your rent in advance (8-12 months or whatever works in your situation) and get a phat discount? I've done that and got a 15-20% discount before. Thats way better than any CD or savings account.

Good luck.
posted by hal_c_on at 12:40 AM on June 28, 2014 [27 favorites]

Online only banks have better interest rates than banks with storefronts . I have an account with Capital One 360 (used to be ING Direct). I transfer money to/from my "real" bank all the time with no issue, you just have to wait 3 or 4 business days for it to complete.
posted by rakaidan at 5:24 AM on June 28, 2014 [2 favorites]

You will have to do the math, but the answer for your constraints ($12K, no risk, half in Nov, half in Feb) is probably going to be "no" as the other commenters have said. Let me break out the why of "no" around one specific investment scenario. Disclaimer: I'm not a financial advisor and this isn't advice, as much as just telling you I've had the same question in the past and relaying what I've discovered or been told by people who are financial advisors. This assumes U.S. and U.S. tax treatment and June of 2014 interest rates.

First of all, at current rates, leaving your money in your bank (even upgrading to some kind of money market account) is going to earn effectively zero. My large consumer bank is paying out 0.03% right now on money market accounts and simultaneously charging a $10 service fee. They kindly waive that fee -- thanks -- but the money I have in that account has not earned enough interest this year to buy a cup of coffee at Starbuck's. I mean that literally.

The standard advice that I've gotten from financial advisors in the past is that the best place to park money (let's say, more than $10K) for less than a year is going to be an ultra short term bond fund. These are mutual funds that invest specifically in bonds with durations of less than a year. Just to be perfectly clear, this is NOT A RISK-FREE INVESTMENT. There are different flavors of funds within that category, so you can dial your risk by choosing a fund that only invests in government bonds, or AAA rated bonds, or whatever. The yields are going to vary depending on the fund manager and whether they are limiting themselves to certain types of bonds, but as a universe, over the last year these funds were typically yielding somewhere between 0.60% and 2% annually. So, for your $12K, you are talking about a return of maybe a little more than $100 for your 4 month/7 month scenarios.

Here are the caveats around making that happen. First, you need a brokerage account. You should have one anyway, and there are plenty of firms that would be happy to take your $12K, but it is an extra step. Second, all of these funds have management fees - the cost to run the fund. You can look them up on Morningstar, and that will represent a worst case scenario. Many of these funds will have a deal with large retail brokerages like e*Trade or Schwab to discount or waive some of those fees. Ultrashort bond funds require more hands on work for the managers of the fund, so expect to see total annual expenses of something in the range of 0.35% to 0.70% of funds invested (or even higher). So on this kind of investment, you've really got to pay attention to the expenses, because at current rates, the expenses are going to eat up half of your return. So your "something more than $100" return just became "something more than $50" after expenses are deducted. That money will be taxed; bond funds can incur both interest income and capital gains/losses, so there isn't a quick back of the envelope calculation here on what the taxes would be. More caveats: funds will often have a minimum investment (e.g. $500, or $2500, or $10,000 - depends on the fund), so that will limit your choices on available funds. Some mutual funds will have a minimum time to be in the fund (without incurring a penalty). So for your 4 month/7 month scenario, you might be further limited on choices. And final caveat: these are investments, so you can absolutely lose money.

So netting it all out: with your constraints, you could maybe increase your return by something in the range of $50 to $100 (not including taxes).
posted by kovacs at 6:17 AM on June 28, 2014 [1 favorite]

CapitalOne360 is currently giving 0.20% interest. Not worth the trouble.
posted by JoeZydeco at 6:26 AM on June 28, 2014

Check your credit union. Mine has an account paying 4%
posted by CathyG at 7:10 AM on June 28, 2014 [2 favorites]

EverBank (online account) has decent rates: 6-month 1.40% bonus on top of 0.91% for $12,000.
posted by three_red_balloons at 9:27 AM on June 28, 2014

Re: the comment above about CapitalOne360 - Current rate for savings is 0.75%, the rate for Checking is 0.20% - Plus you can get a small bonus for opening a new account. It might not be a huge gain for the amount you'll be depositing, but it would feel better to get something rather than nothing/not much which is what you're looking at if you have a traditional bank savings account. Lots of other similar options for savings or money market deposit accounts at that rate or slightly above with no minimums.
posted by belau at 10:22 AM on June 28, 2014 [2 favorites]

The idea that there is negligible risk in prepaying 6-12 months of rent is insane, in my opinion. There are a million ways that one's living situation could become intolerable in that time, and few landlords will cheerfully refund the money. The choice to send in rent every month is a powerful tool that shouldn't be gambled away.

I think a good bet is to look for a bonus for opening a new bank account, one that requires a minimum balance of, say, several thousand for 3 or 6 months. Try looking here.
posted by Mapes at 12:09 PM on June 28, 2014 [2 favorites]

CapitalOne360 also has promotions every July 4: last year's offered a $76 bonus for a savings account and $100 for a checking account, but this year's may be different. If they're similar, adding them on top of the interest might get something comparable to the bond fund kovacs mentioned.
posted by holgate at 12:45 PM on June 28, 2014 [1 favorite]

Whoops sorry you're right, I skimmed my statement and saw the wrong rate. I miss the ING Orange days...
posted by JoeZydeco at 2:50 PM on June 28, 2014 [4 favorites]

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