One of Mrs. RB40’s conditions before I can quit my job is to save $50,000 in cash. This is in a saving account of course, not under the mattress. We met this goal in January and I wrote – Where should I stash $50,000? First of all, I’m happy to report that we haven’t had to dip into those savings yet. My target is to spend less than we earn so in theory, we shouldn’t need to touch that reserve. Having extra cash on hand is a great insurance during a major transition. We probably won’t need it, but if we do, it will be there.
Anyway, my plan is to keep the stash liquid until early 2014. By then, we’ll have a better idea of our emergency fund needs at our current income level. If the $50,000 remains untouched, then I would invest most of it. This is a bit more money than I usually keep in our saving account. Previously, I had 3-6 months of living expenses covered, usually around $10,000. A saving account isn’t the best place to stash $50,000 since the interest rate is so low now, but one year is a relatively short time. I have been using ING Direct for the last few years, but now there are better options on the market.
Criteria for selecting a savings account
- No fee! I hate fees. Last week, I was charged $10 for not maintaining the minimum daily balance at my Chase Online Checking account. I sent $5.61 to pay the Southwest Chase card. On the same day, I set up a $25 transfer from my Credit Union to bring the balance back up. Unfortunately, it took a few days for the transfer to go through and my balance went below the minimum daily balance of $1,500. That was a bone headed move on my part. Anyway, I called Chase and got the $10 refunded. I also closed the account because the only reason I opened it in the first place was for the $100 new account bonus.
- Good APY (annual percentage yield). I’m quite happy with ING. Their site is easy to use and I can transfer money back and forth with no problems. I don’t really want to move and the rate should be noticeably better for me to change bank.
- Alerts. I like receiving alerts such as emails and texts. One useful alert is the low balance alert. For this account, I can just set the low balance alert to $50,000 and that should give me a warning if something is wrong with the account.
- FDIC insured. All saving accounts are FDIC insured from what I understand.
These rates are up-to-date as of Jan. 10, 2013. You can click on the bank banners below to see the most up-to-date rate and open a saving account.
You see two lines for CIT because the rates are different depending on your balance. If your daily balance is $25,000 or more, then you get the best rate – 1.05%. If the balance is below $25,000, then you only get 0.9% APY and you’ll be charged a $10 outgoing wire transfer fee. (You can get a check through the mail for free though.)
I like CIT enough to overcome the inertia and open an account there. $126.16 extra is not a lot of money, but why leave anything on the table? Ally bank is also a good option. I would probably go with them if I had less than $25,000 in the saving account.
At the beginning of 2014, I’ll pull some of the money out to invest. If things go well and we don’t need as much of a cushion, then we’ll probably go back down to 3-6 months of living expense in the saving account. Here are the investments that I’m planning to use.
I Saving Bonds – These are government bonds with a better interest (currently 2.2%) than a saving account. I bonds has a minimum 1 year holding period.
Peer to peer lending – This is unsecure lending to consumers and it is much more risky than a saving account, but the return is much higher as well. You can read more about it in P2P Lending For Extra Retirement Income.
Buy more dividend stocks – I like this plan too. We’ll generate some extra income while also benefitting from the growth of the stock market.
How about you? Are you getting the most out of your savings account? If your emergency fund is in a local saving account, you probably are not getting the best interest rate. Why not take a look at these saving accounts?
*Yes, this is a shameless attempt to boost the interest from our EF stash. If you sign up with one of these banks through the links on this post, I’ll receive a commission. I promise to add the commission to my CIT account and report the real APY in my monthly cash flow posts. Thanks in advance for boosting my interest rate.