Investing for the extremely risk-averse
July 9, 2018 10:36 AM   Subscribe

Due to a combination of laziness and anxiety about money, I have what seems to be an excessive amount of money in checking and savings accounts. What should I be doing differently (besides everything)?

I've almost always had a healthy amount of money in savings. Liquidity makes me feel comfortable. Knowing that I have cash on hand in case something goes sideways helps me breathe more easily. Plus when my husband and I were looking at condos several years ago, he was like, well what are we going to use for a down payment and I was like, oh how about money and that was exciting for me.

Alas, having more money has made me feel more anxious about it. At this point, I believe have a healthy five figures of cash on hand in savings and checking accounts. I realize that I am actually losing money by keeping it there because inflation (and the interest rate on the savings account is laughable). There are other things I need to do money-wise to get my act together (reallocate retirement savings, rollover a 401k, etc) but I think this is the low hanging fruit.

Because I am risk averse and like having cash on hand, I'm interested in a money market account though I'm also considering CDs. One reason I'd like to have the money available to me is that I'm interested in house hunting in a year or so though I realize a one-year CD might be the right place for some money. I suppose my goals are 1) stop losing money 2) start making money and 3) have money available to me in case Something Happens.

TL; DR:
What are the pros and cons of MMAs vs. CDs? Are both MMAs and CDs FDIC insured?
Are there any weird tax implications with MMAs or CDs I need to be aware of compared to a typical interest-bearing savings account?
What other questions do I need to ask before I move my money?
Is there a better option for a short term (1-2 years) investment? I'm maxing out my 401K. I also have an underused IRA and have put money into a 529 account for my daughter.
Does it matter if the bank I am moving my money to has physical locations nearby? Should I just go with whatever has the best interest rates on bankrate.com?
How much money do Normal People with Money keep sitting in a checking account? Do NPwMs use checking accounts?

If you could kindly keep in mind that this question is embarrassingly overdue and talking about money makes me anxious, I'd appreciate it. Thanks in advance for your help!
posted by kat518 to Work & Money (13 answers total) 49 users marked this as a favorite
 
You can invest conservatively and improve the world, sensibly, by doing it in a socially responsible mutual fund. Here's a link to a previous comment I made talking about misconceptions about these kinds of funds, and very specific info about what one fund actually does/did. Rather than avoiding anything that does anything "bad", they have some restrictions on what they invest in but use their voting power to encourage positive actions.

I am not an expert on this stuff, I just find this particular mechanism compelling, misunderstood, and probably really important. Please consider it.
posted by amtho at 10:56 AM on July 9 [1 favorite]


Money market deposit accounts (but not money market funds) and CDs are FDIC insured, just like your checking and savings accounts, so no worries there. Right now, CDs and money market deposit accounts are not paying much more, and often less, than savings accounts. For comparison purposes, here is the information about rates for various products at DiscoverBank. At one time, specifically when I opened a savings account there, DiscoverBank was paying about the highest interest around. It's probably still pretty much the case, but I haven't checked recently.

My strategy for cash is this: I keep about a month's worth of money, plus a cushion, in a local checking account. At the end of each month, I sweep whatever is left in the account over and above the cushion into a savings account at the same bank. That savings account is my slush fund for abnormal expenses and is very convenient since I can move money into the checking account instantaneously online.

The more substantial savings sit in the aforementioned DiscoverBank savings account. That money is a bit harder to access - the online transfer to my local bank takes about three days - which means I dip into it only in well-planned circumstances. I've always shied away from CDs because I'm convinced that *something* will come up and I'll need the money before the CD has matured. But then, my anxieties around money mean I worry if my money isn't accessible. I have no worries that I'll blow through money just because it's available.
posted by DrGail at 11:21 AM on July 9


We are looking into a financial planner for some of these questions.

One option I am aware of that appeals to me (also risk averse) is treasurydirect.gov. I am still investigating the best route for us though.
posted by typecloud at 11:25 AM on July 9


Money market accounts (not money market funds) are FDIC insured as long as you're at an FDIC-insured bank. They generally give you a higher interest rate than regular savings account, but have restrictions on how many transactions you can make per month. Many of the best interest rates are offered by FDIC-insured but internet-only banks, and that means it often takes 3 days for money you deposit or withdraw to move between your checking and MMA account. If you're just parking money there, then those are probably not going to be big issues. The interest income is treated exactly like interest income from a regular savings account in terms of taxes - nothing unusual.

CDs are also FDIC insured, and will generally have a slightly higher interest rate than a money market account. However, unlike a MMA, you can't keep depositing money in every month, nor can you take any out - you put a lump sum into the CD and then it sits there for the entire term. If you have to take an "early withdrawal" (take some/all money out of the CD), you'll generally lose not only the interest but potentially also pay a fee that would reduce the amount you originally put into the CD. Plus, the interest rate on a CD is fixed for the entire term, while an MMA interest rate can vary - which is a plus for the CD if you anticipate interest rates falling, but a minus if they're likely to rise. I think the Fed has pretty much indicated that interest rates ARE going to go up over the next year, which doesn't make a CD look better.

From my perspective, a MMA is generally a no-brainer compared to leaving your savings in a regular savings account at your bank, as long as the "emergency" you're thinking about is something like losing your job or having your car break down (where a 3-day delay for accessing funds is not a huge deal), and not something like needing to make bail in the next few hours. I also feel more secure having my big savings in an account not directly tied to my checking, since I'm paranoid about a situation where someone illegitimately gets access to my checking account and my bank oh-so-helpfully starts covering bounced checks or transfer requests by automatically transferring funds over from my savings. I try to keep no more than $10k in my checking/linked savings, and all other savings that I believe I will need in the near-ish term (upcoming renovations, emergency fund, etc) is in an MMA.
posted by iminurmefi at 11:33 AM on July 9


I recently bought a portion of a T bill (US treasury bill). I get a healthy return (for guaranteed investments) and Fidelity, where my IRA located, charged no fee for the transaction. I was surprised to find this, but this is their policy regarding T bills, at least it is for current customers. No idea about non-customers or if this is common among investment companies in general.

At Fidelity you can purchase in increments above $25,000, and if you need the money it is immediately available on the next business day. You will realize whatever interest has accrued. I bought a one year bill, though there are shorter or longer terms. Interest for a shorter term is less than for a longer one -- makes sense. You pay a discounted rate, and when the period of the bill has elapsed, the bill is redeemable at face value. You can then buy another one, or not. If I wanted a $25,000 one year bill, I might pay $24,500, and when it has matured it will be worth $25,000.

Not sure if this is something that would work for you, but I had similar fears that my money would be "locked up" and I'd pay a penalty for early withdrawal. This solution is working for me.

There are probably other ways to buy in different increments, but this was convenient and I was afraid of doing something wrong if I tried to do something with so much money without professional advice, and wanted a knowledgeable person to answer my many questions.
posted by citygirl at 11:48 AM on July 9


My husband and I went through this a few months ago. We're both aggressive savers and very conservative with our money. When we got married, I had a bunch of cash in an older online Capital One savings account, and he had a bunch parked in his ancient, grandfathered money market account, tied to a checking account and earning 0.01% interest. (Even the person at the bank was like, "Oh, wow... yeah, that's pretty low.")

We researched at NerdWallet and found that DiscoverBank was offering the best rate of the moment (1.50% at the time, now it looks like 1.75% ), plus a $200 bonus. It's FDIC insured, and easy to get to with a couple days notice. We keep about 2 months worth of expenses in checking, and maybe 18 months worth in this new online savings account. This is still more than I'd like - I've been starting to invest more in a brokerage account - but at least now we're earning something on our nest egg.
posted by writermcwriterson at 12:39 PM on July 9 [2 favorites]


Oh hey this stuff is challenging, good for you for asking about it! I am also a money hoarder. This was always a little odd, but since both my parents died over the last decade it's become comical because now I have an amount of assets that makes hoarding money in savings accounts (which I did! I like it! I feel you!) not that sensible. I also have a financial planner and he's a fan of my system :)

So! You are doing fine. If you're concerned about liquidity, investing may not be the way to go with this. General consensus is

- pay down debt
- get six months expenses saved
- max out retirement/IRAs

My world of money looks loosely like this

- regular checking/savings account at local bank with mid five figures in it (good for paying rent, local contractors, etc)
- regular checking at USAA (better rates) which is a Money Market, has minimum balance requirements so I keep it above that
- CD ladder at Discover Bank
- bank account at Discover Bank
- credit card at Discover Bank (they have the best online interface and I am fussy)
- regular and Roth IRAs which I contribute the maximum too each year
- inherited IRAs from parents which I have to take distributions from
- investment accounts for the rest of my money

So to your questions:

What are the pros and cons of MMAs vs. CDs? Are both MMAs and CDs FDIC insured?


CDs have a few more rules governing them and they "come due" at a specified time. MoneyMarkets have (usually) slightly lower rates of return but are more like bank accounts with a limited number of transactions you can make. They're insured if you get them from a bank that is insured.

Are there any weird tax implications with MMAs or CDs I need to be aware of compared to a typical interest-bearing savings account?

No. I think (check this) that you just get a normal interest statement with an MMA and you maybe only have to pay taxes on gains with CDs when you cash them out?

What other questions do I need to ask before I move my money?

You seem to be being thoughtful here. Check in with your husband so you guys can make sure you're making decisions together, even if you don't share money it's a good plan.

Is there a better option for a short term (1-2 years) investment? I'm maxing out my 401K. I also have an underused IRA and have put money into a 529 account for my daughter.

I don't know about this but there is a good chance there is someone at a bank who could talk with you about this, just don't let them sell you on any special bank stuff.

Does it matter if the bank I am moving my money to has physical locations nearby? Should I just go with whatever has the best interest rates on bankrate.com?

I like having a local bank because I live in a small town and having local checks is important to people but most of my stuff is with USAA.com and it's been fine.

How much money do Normal People with Money keep sitting in a checking account? Do NPwMs use checking accounts?

I do, all the time because, as I said, I live rurally. I think in the US checking accounts are still a thing tho I do pay as many bills as I can online. My general rule of thumb (and as I have said, my money situation is far from typical) is to never have six figures just sitting in bank accounts and I try to keep it to mid/low five figures which is six months of living expenses for me.
posted by jessamyn at 1:12 PM on July 9 [3 favorites]


I keep a 'float' of $1000 in my checking account. Everytime I am paid, I subtract the (upcoming bills + $1000) from the balance. Then I transfer everything else to savings. So a typical set of calculations would look like
Initial balance: $6000
Float: -$1000
Rent+ Childcare+ Utilities : -($3500)
Money sent to savings = $1500

So the balance in my checking account at the start of the month is $3500.

In my savings account, I keep $10,000 + whatever big planned spending amounts are coming due in the next year. I try to make sure this doesn't go above $45,000. This money is losing value, after taxes and inflation.

I keep my 'serious' emergency fund (6 months+ of all expenses) and all other savings (down payment, retirement, college funds, car fund, etc.) invested in a balanced portfolio of equities and bonds. If a major market correction takes place, I would not need this money to survive, so I don't need to trade off the earning power to ensure that I preserve my capital. I will just ride the wave.

Great work taking control of your finances! I was a very conservative investor when I started out too. I have become more confident because of reading Andrew Hallam's Millionare Teacher and everything and anything by Gail Vaz Oxlade.
posted by Sauter Vaguely at 1:38 PM on July 9 [5 favorites]


A lot of banks have started offering simple investment counselling to their account holders. I'd take their advice pretty carefully, but they should certainly be able to answer questions and give you some info and ideas.
posted by still_wears_a_hat at 2:36 PM on July 9


Edit to my comment above (because math!): the balance in my checking account at the start of the month is $4500
posted by Sauter Vaguely at 3:10 PM on July 9


Right, so, there are a few things going on here. One is that you don’t actually have a ridiculous amount of liquidity at five figures. The reason why is because selling something like a mutual fund or a position in an index fund can take a while, and it can be something that you really don’t want to have to do if the market is down. For that reason, having five figures liquid when you are going to use the money in around a year is really not an issue. If you can find something with a fixed rate of return that will give you less than a year before you get it back, great! Do that. For money that you want to invest over the long term, the typical strategy for someone younger who wants to invest over the long term would probably be some kind of regular investment in a mutual fund or index fund. The issue with this is that the market goes up and down, and if you’re going to need to take the money out at a certain specific time, you can really take substantial losses that would be smooth out if you kept your money in the market over, say, five or 10 more years. The other thing is, the stock market, well, it’s been going up for a while; it’s been growing. But there are a lot of substantial structural changes to the way things are working right now in our economy and it’s not really clear how those are going to end up. So, for you, it isn’t horrible to have five figures liquid at all, it seems like a fairly smart move and one that I wouldn’t change. If you want to invest a portion of your income going forward, then you might consider regular purchases of an index fund, probably from Vanguard or something similar low for you so, for you, it isn’t horrible to have five figures liquid at all, it seems like a fairly smart move and one that I wouldn’t change. If you want to invest your money going forward, then you might consider regular purchases of an index fund, probably from Vanguard or something similarly simple and low fee.
posted by Rock 'em Sock 'em at 5:33 PM on July 9


Also, I hear that you’re anxious about this, and it sounds like you feel like you’ve done something wrong, but you really, really haven’t. You’ve done a fantastic job so far and should be very proud of yourself.
posted by Rock 'em Sock 'em at 5:35 PM on July 9 [6 favorites]


TLDR: there exist fee-based financial advisors, which can give you pro-grade advice on this.

Many places offer free financial advice, but they also massively tilt their advice to "invest your money *with* us", which may not be in your best interest.

Assuming you've got 100k, and the difference is 1% interest, if that fee-based advisor is less than $1000... it may be worth paying.

My question would be: you mentioned maxing out your 401k. Is that invested in an extremely risk-adverse fashion, or do you have at least some of it in stocks and/or mutual funds covering the stock market? If not - and if you're under 55! - you'd likely be *massively* shorting yourself in the long run.
posted by talldean at 11:28 PM on July 11


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