I’ve been sitting in quite a bit of cash for a year, largely in my brokerage account. I have 3 brokerages all 3 pay bupkus on the money market accounts. I think it how they generate those “free” mutual funds. They shave points off the money market returns to pay for the mutual funds. Individual investors are notorious fo leaving money un-invested and therefore un-risked and all that un-invested money just keeps the light on plus a tidy profit for the brokerage. With the FED taking it’s boot off the banks you can actually get a tiny bit of interest income these days. I considered putting the dough into a CD ladder but CD ladders tie up the money and create taxes. I did put the money in a short term muni bond fund which “should” have paid me a little tax free while waiting to spend down the balance over the next 4 years, but with interest rates backing up the Muni fund went down and I promptly lost 5K so I decided to take the loss and make another plan.
I could ladder a CD for about 3% average yearly return having trounces of the ladder come due across the period in time to pay for hamburgers and taxes, but the non-liquidity about that plan bugged me. It tied up the money in a way that would generate a penalty if I needed some cash fast for some reason. It turns out there is now online banking which pays pretty high interest, compounded daily, perfectly liquid, FDIC insured to 250K. So I decided to stuff that money into a couple high interest savings accounts. The account yields 2.45% annually, compounded daily paid monthly. The interest is taxable, so given my Roth conversion at the 24% bracket for every dollar of interest I make I have to send Sam 24 cents, but keeping 76 cents ain’t such a bad deal seeing as how presently I’m making 0.1%. If I had a CD ladder I would have a similar tax drag.
The logistics were easy. I have my accounts linked so I merely validated the internal and external accounts and started transferring money. Accounting for the transfer was virtually over night but I’m sure setting the account will take a couple days. The savings account does not have checking or any other “features”. It houses money, compounds money and allows transfer in and out. Unlimited transfer, limited transfer out is limited to 6 electronic transfers per period, or by check PRN. I generally transfer twice a year, enough to cover hamburgers and taxes and pay bills through a checking account. Should generate enough over the next 4 years for 3 free trips to Europe or maybe 2 to Asia, after taxes.
5 Replies to “I Took The Plunge”
I guess I always say I have cash but I actually have these types of high interest accounts. I find them very simple.
Liquidity plus guarantees depending on which credit union I kept them with.
I have a feeling that I will always need some portions of my money in these.
Until recently it didn’t much matter because they were running around 1% but 2.45 is bond level interest
I typically have it set up so when money hits my local bank via my bi-monthly paychecks, I automatically transfer it out to my online bank (think I’m getting 2.24% APR). Not going to make me rich anytime soon but it is a nice holding place that grows while I wait for the next investment offering
Our house down payment is sitting at one of these online banks. The interest rate is slowly creeping up which is nice to see. Makes leaving so much as cash a little less underwhelming.
Because of the FED forcing down interest rates we’be grown used to outsized equity returns in a stable market. Bonds Interest and stocks all were hitting a 90% move from the mean. Stocks to the + Bonds to the + forcing down yeild and interest to the negative to near zero. This is why unwinding the balance sheet is so precarious because usually if one average is out of whack the others are not. Nobody quite knows how all three regressing to the mean at once will work except it likely will be quite volatile as we saw last year. Regression to the mean in all indexes is a necessary thing and good to occur in a rising economy, we just don’t want it to regress all at once.