Where should we keep a large amount of cash after house sale?

December 18, 2022 6:31 AM

We sold our house in an expensive housing market this week, and now have a little over $1M in a 3% savings account. We will use this money to buy a house in a different expensive housing market sometime in the next 18 months. While we're living in our rental and searching for our next house, in what kind of account(s) can we safely store such a large amount of money?

Our new housing market (and school zone) has very limited inventory, and we're in a decent enough rental for us to be patient and picky about our next house. We may find that house next week or it may take a year or even two. We'll need to have this money readily available when we do find the house, but in the meantime I'd like it to be somewhere where it's earning some interest/yield, but does not have any possibility of loss or decrease in value.

The right answer may be the 3% savings account that it's currently in, but I'm a tiny bit concerned that it's not FDIC insured above $250k. I think Ally is on firm financial footing, but it's probably not too big to fail, especially considering its auto lending arm.

Are there US bank accounts that are insured to $1M and more that earn interest risk-free like a savings account? What do wealthy individuals do in this situation, and are those options available to those of us who are only temporarily flush?

posted by anonymous to Work & Money (15 answers total)

The 250k FDIC limit is per person and you can also double up per person if one account is joint and two are individual. I'm not sure about investments at all, but if you want to keep 1m at one bank insured you can. Just talk to your bank about setting up 3 accounts, 1 individual for you 250k insured, 1 individual for your partner 250k insured and one joint account 500k insured. It's also per bank if you'd rather just spread out to 2 joint accounts of 500k each. It seems weird that it works this way, but it does. (Source: many years of ABA training when I worked at a bank).
posted by Eyelash at 6:42 AM on December 18, 2022 [14 favorites]

I keep money like that in a brokerage account (vanguard or fidelity) in a S&P500 index fund. Very low fees and statistically you'll track at a higher clip than 3%.

Right now could be a good time to buy in, but it could also not. I'd recommend dividing your 1MM by the time where you'd say "I'd really like to have this money invested by now" and deposit each month proportionately. So if you want it in the market in 6 months, deposit 1/6th of the money each month.

Of course, if you haven't, you should definitely max your 401k contributions first.

When you need the money out, you can transfer it out within a week. Mortgage companies / banks just treat it liquid, as if it were in your bank account.

Edit - if you really want NO possibility of loss you shouldn't take the above advice. But statistically there's a much higher chance of a large gain!
posted by bbqturtle at 7:24 AM on December 18, 2022 [1 favorite]

I suggest spreading it out to different banks. For example, Citibank's Accelerate Savings Account currently offers 3.40% interest rate. Also take a look at Treasury bills (T-bills) - interest rates have been above 4% for 3 month and 6 month T-bills. Another advantage over bank HYSA's, depending on where you live, is that interest from T-bills is subject to federal income taxes, but not state or local income taxes. The purchase limit for T-bills is $10million, so technically you could park it all in T-bills.
posted by needled at 7:41 AM on December 18, 2022

If your time horizon for needing this money is +/- 1 year, PLEASE do not invest it in the market per bbqturtle’s suggestion.

It sounds like you need essentially instant access to this money once you find the perfect house and need to pounce on it, so cash or cash equivalent is really the right place to be. No CDs, unless you are willing to gamble on the timing of your dream house the CD’s maturity date.
posted by misterbrandt at 8:12 AM on December 18, 2022 [33 favorites]

Yes, absolutely do not put it into the stock market. It could easily go south during your timeframe and leave you badly underwater. Unless you're willing to not buy a house for years or take a substantial loss, the stock market is a terrible place to put your house buying money.

Some CDs have extremely minor early termination fees so that's at least worth looking into.
posted by Candleman at 12:03 PM on December 18, 2022 [3 favorites]

in a 3% savings account

IME this is the best deal for savings account interest in the US right now (but that figure will increase, next year.) So you're keeping it in the right place.
posted by Rash at 12:58 PM on December 18, 2022 [2 favorites]

Do not put into the stock market. Put it into as many separate accounts as you need to, to ensure the whole sum is insured. And in any case, make sure that whichever banks you pick is not some kind of shady fly-by-night thing, but a straightforward member of a well-regulated system.
posted by plonkee at 1:12 PM on December 18, 2022 [1 favorite]

FDIC limits or not, I would still spread it around a few different banks. If one of them does happen to go under it can take months or even years to get your money back.
posted by Lanark at 2:30 PM on December 18, 2022

I agree with those above about insurance and staying out of the market given your short horizon. I like depositaccounts.com for finding the best rates. E.g. this 4.35% savings account -- but note what it says about staying ready to move your money if the rate drops -- or this 4.18% money market account for balances of at least $100K -- though again, no guarantees for how long that rate lasts.
posted by daisyace at 3:56 PM on December 18, 2022

The American Express savings account is currently paying 3%, and we've had a good customer service experience with them in terms of easy access to deposits.
posted by BlahLaLa at 4:26 PM on December 18, 2022 [1 favorite]

I think putting in a CD would be fine. You don't necessarily need the full amount available day 1 when you purchase the house. You just need enough available to qualify for a mortgage, and then you can pay the rest when the CD matures.

If I was feeling really risky, I'd put $250k (which is a huge downpayment) in savings, $500k in a CD, and the rest in the stock market.
posted by The_Vegetables at 7:43 AM on December 19, 2022

Reminder - the OP is specifically asking how to get more protection on bank savings above the $250k FDIC level. The OP already has a 3% interest rate.

A couple of thoughts/comments:

1. Here are a couple of articles with lists of ideas for splitting up your money or taking other steps to get FDIC protection on your full amount. The main move here is to open multiple accounts at multiple banks.

2. That said, it is very challenging to find an example of someone losing money above the FDIC limit in a modern/recent bank failure. See this forum discussion. Multiple big banks failed in 2008 and people with over $250k in bank deposits did not lose money. There are some small/weird bank failures that might be different, but Ally is not in that category.
posted by Mid at 11:43 AM on December 19, 2022 [1 favorite]

Reminder - the OP is specifically asking how to get more protection on bank savings above the $250k FDIC level. The OP already has a 3% interest rate.

3% is below the current inflation rate, so assuming they take longer than a year to find their home and keep it all in bank savings accounts, they will lose about 1% of their money.
posted by The_Vegetables at 11:53 AM on December 19, 2022

(Agreed, was just noticing that the OP is most interested in insurance/protection.)
posted by Mid at 12:05 PM on December 19, 2022

Massachusetts savings banks have an insurance fund that covers deposits over the FDIC limit. I don't know which of these banks offer competitive interest rates, though. Like Mid, I wouldn't be worried about any major bank failing over the next couple of years.
posted by Jasper Fnorde at 1:57 PM on December 19, 2022