Where should I put my money?
February 21, 2020 5:09 PM   Subscribe

I have $23,000 USD in a savings account. The amount of interest I earn is minuscule. Where can I put my money that would earn more but still be accessible should I need to use any of it for an emergency?

I'm 67 yo with a 24 yo car, so there is a likelihood I might need the money for unexpected expenses.
posted by ydaltak to Work & Money (15 answers total) 17 users marked this as a favorite
If that's your emergency savings for unexpected expenses then it should be in a savings account. The best rates right now are around 1.7%. If you are getting worse than that then move it to one of those accounts.

You can do things that may give you a higher rate, but they are either higher risk (investments that can go down) or require you to tie your money up for months or years (e.g. CDs). Which is to say: they are exactly where you should not put your emergency savings.

If this money is more than say 6 months of your living expenses and you earn more than you spend, then congratulations! You may have more than you need for what is normally considered "emergency savings". If this is true, you could consider putting some fraction of it in a higher return thing. I'd urge you to calculate the dollar amount of interest you're missing out on before you do though. We're talking a few tens of dollars per month. Is that worth the complexity/effort/risk?
posted by caek at 5:16 PM on February 21 [10 favorites]

Agreed, at that age you should have at least that much available in cash immediately even without a vintage car. You won’t earn significantly more in any predictable way that doesn’t tie this money up. If you have plenty of savings behind this and positive cash flow I’d consider “laddering” it into CDs, several smaller CDs over time, which has them maturing at different times so you’ve always got some savings coming to maturity. If you don’t need it then you reinvest it.
posted by spitbull at 5:22 PM on February 21 [1 favorite]

I have Citizen's Access (see the list provided by caek above.) Their rates are 1.85%. I haven't had to take money out, but I do think it will take a few days to get it out.
posted by parkerposey at 5:24 PM on February 21

Lake Michigan Credit Union provides an excellent interest rate (I think it's 3%) on up to $15,000 (see here). Obviously you may be able to make more in the stock market, but for the purposes you describe, you need something risk-free where your money can easily be liquid. I'd recommend a LMCU account (or something similar).
posted by ClaireBear at 5:31 PM on February 21 [1 favorite]

Vanguard. I made 12% interest last year, and was able to pull out a big chunk in one day.
posted by Ideefixe at 6:04 PM on February 21 [4 favorites]

You could just as easily have lost 12%. caek is right.
posted by praemunire at 6:16 PM on February 21 [22 favorites]

Savings account. Search for the bank with the highest interest rate and park it there
posted by sid at 6:37 PM on February 21

I've been happy with my American Express High Yield Savings Account (1.7% interest - it was 2.3% when I started but the rates have slowly been dropping). I can get the money in about 2-3 days via electronic transfer to my bank.
posted by rogerroger at 7:00 PM on February 21 [1 favorite]

I’m forgetting the exact rate but I have a similar amount in a Bank of America savings account for a long while that brought in nearly nothing while transferring to a local credit union is at least bringing in a few dollars
posted by raccoon409 at 7:23 PM on February 21

Funds above and beyond your 6-month emergency buffer could go into a Roth IRA - donations cap at 6k a year, so it's just a little lump you can drop in year over year. It does have early withdrawal taxes/penalties on the interest you've earned if you pull it before you're 59 1/2, but you still end up having access to more than you put in. And it's a good chunk of what you can put towards retirement!
posted by FatherDagon at 6:01 AM on February 22

Seconding Citizen's Access, although I don't feel like the rates are going to be that high for much longer. These super-high-interest online-only accounts all popped up in 2006 and were paying 0.0% by 2009.

And my funds have always been transferred in 1 business day, even though they warn it takes 2-3.
posted by JoeZydeco at 6:26 AM on February 22

Father Dagon: OP is 67. Early withdrawal penalties from an IRA are not relevant and the contribution limit is different.

But in any case investing in an IRA is more trouble than its worth. They have only three more years of contributions and should not invest life savings in anything other than low risk low return cash accounts at this age, so the interest they lose to tax by investing outside an IRA is trivial (about $30/year for a maxed out contribution).
posted by caek at 7:33 AM on February 22 [2 favorites]

You can do things that may give you a higher rate, but they are either higher risk (investments that can go down) or require you to tie your money up for months or years (e.g. CDs). Which is to say: they are exactly where you should not put your emergency savings.

Let me offer a middle ground: a Certificate of Deposit ladder. Divide your money up into 12 lumps (or 13 and keep one lump for savings account), and then buy 12 1 year CDs with them, with one maturing every month of the year. Short term CD rates are lower than savings yields, but 1 year CDs are a bit better -- 2 percent vs 1.6-1.8. So every month for the next year you take out a lump and buy a CD maturing a year from then.

The benefit here is liquidity: you have a CD maturing every month, so if at some point you need to put a car repair on the credit card, you can swipe now, cancel the auto renewal, and you'll have the money liquid when the bill comes due to pay in full. If you really need the cash now, or you need more than 1/12 your ladder, you can break the CDs, in exchange for surrendering some of the interest. Yield on a broken CD will end up being less than savings, but the ladder can still be a net win depending on the timing and size of the withdrawal.

One possible factor to consider here is taxation. Savings and CDs interest are taxable as ordinary income. Depending on your tax bracket, government bonds could be a better match. Compare two scenarios for a Californian investor with $1,000, in the 22 percent tax bracket federally, 6 percent state:

1. A savings account yielding 1.85 percent, earning $18.50 at end of year. You keep $13.56
2. A 1 year US Treasury Bill yielding 1.43 percent (current market rate), earning $14.30 at end of year. Taxed by the federal govt but not the state, so you keep $11.15
3. A 1 year muni bond yielding 1.43 percent (literally made this up), earning 14.30 at end of year. You keep all $14.30, because the IRS doesn't tax muni bonds and California doesn't tax muni bonds issued from cities within the state.

This is something you'll have to do the math on, if it's even worth your time. Right now treasury bonds are underpaying relative to CDs, so US treasury investing may not make a lot of sense, even if the risk is low. Investing in muni bonds is way higher risk, and you'll pay more fees to do so. This is why VCAIX exists; when people buying equal people selling they can settle redemptions without transacting in the underlying assets, and they can invest in a lot more assets to diversify. This is again, a state by state basis, and to pull a relevant example, I'm not aware of such a fund for Utah.
posted by pwnguin at 11:53 AM on February 22 [4 favorites]

I have mine in a couple of CDs. I'm not worried enough about losing interest in an early withdrawal to split it up among more than two. They're in for 18 months because that's the highest rate my credit union has, and it wasn't worth the effort for me to go to a new bank.
posted by metasarah at 12:18 PM on February 22

Money market account might give a bit higher interest and remain readily accessible.
posted by latkes at 6:11 AM on February 23

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