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{ 34 comments… read them below or add one }

Travis October 1, 2012 at 7:20 am

I had the same problem in 2009. I like having a $50,000 cash cushion, but I want to make sure that money isn’t losing value due to inflation. I thought I was going to need it in the very short term, so I had a Dollar Savings Direct account. They slowly worked their way down from 1.xx% to 0.70%. I ended up not needing to dip into the savings (yay!), so I decided to get a tiny bit more aggressive.

I currently keep that money in Vanguard’s GNMA fund (VFIJX), which has been pretty stable, even during the economy crash. However, even those returns are starting to slip down. YTD it has returned about 2.8%. Not great, but still a heck of a lot better than any savings account. Over the last 5 years, it has returned almost 6% annually. It is backed by mortgages, so as more people refinance, the rate has been dropping. I’ll need to look for something else soon. But, at least I’ve been getting over 3% returns when I was really only expecting 1% returns on those funds.

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retirebyforty October 1, 2012 at 11:30 am

We’d like to have a stash that’s easily accessible for now. I know the saving account isn’t the best place for it, but I figure one year is a short time. We have other investments so I’m not super concern about ROI on this reserve. I’ll invest most of this reserve once we’re sure we can handle my retirement.

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SavvyFinancialLatina October 1, 2012 at 8:06 am

Joe, what can I say? I can’t wait to have $50K in the bank account! :)

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retirebyforty October 1, 2012 at 11:31 am

You can still open an online saving account to maximize interest with less than $50,000. :)

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Lance@MoneyLife&More October 1, 2012 at 10:23 am

I won’t be switching banks in the near term but it is nice to know what is out there. I am also considering trying P2P lending but haven’t deicers whether or not to try it out yet.

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retirebyforty October 1, 2012 at 11:31 am

P2P is going well for me, but it is much more risky than a saving account.

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Jeff Bronson October 1, 2012 at 11:20 am

Great job, $50k is nothing to sneeze at, a formidable sum.

I’m about 30% towards that goal myself.

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William @ Drop Dead Money October 1, 2012 at 1:33 pm

Joe, you could invest it in preference shares. They have small price movements and typically pay 6-8%. They’re like a cross between a bond and a stock… Using Google Finance you can look up for instance LHO-G. Other than a dip when hedge funds and mutual funds had to unload, the price stayed at about $25, which is its issuing price. Dividends around 7%. There are many more like that. Fairly liquid, so you don’t need more than the normal 4 day time lapse to take your money out.

Just a thought…

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Kathleen @ Frugal Portland October 1, 2012 at 5:11 pm

What a problem to have! :) When we go out, I know who’s buying the first round! :)

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retirebyforty October 1, 2012 at 11:30 pm

I only have $12 in my wallet. :)

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Aloysa @My Broken Coin October 1, 2012 at 5:55 pm

I use ING and so far I really like it. Interest is not great but I love how fast they transfer money, heir no fee structure and $1 min deposit. :) $25K is a little too much for me.

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retirebyforty October 1, 2012 at 11:30 pm

I like ING too, but I’ll try CIT and see how it goes.

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Squirrelers October 1, 2012 at 8:43 pm

It’s good to know what the alternatives out there are. I think many people these days might be just assuming that the rates are so low that it doesn’t matter. However, when you’re ramping up savings to much larger amounts, slight improvements in rate of return can actually be impactful!

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retirebyforty October 1, 2012 at 11:31 pm

That’s why I don’t bother with CDs right now. It’s not worth it. If rates go up, then I’ll build a CD ladder.

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Kim October 1, 2012 at 8:49 pm

Thanks for the list. I always assume ING is the best. Guess I need to check around more. Doesn’t it make you sleep well at night knowing you just have $50K there if you need it?

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retirebyforty October 1, 2012 at 11:34 pm

ING was one the best, but they went down quite a bit lately. It helps Mrs. RB40 sleeps better and that’s good for me too. :)

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Parvinder@Readtoawake October 2, 2012 at 1:29 am

Good points for who is seeking a secure shelter for his money. But I usually don’t use saving accounts for a huge amount of money. I invest them in large caps… I know that it’s risky, but on long term it will pay back.

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Jefferson @SeeDebtRun October 2, 2012 at 4:28 am

I use ING for our Emergency Fund, Savings Accounts, and for a “Staging” account that I use to drop my paycheck into for some of my larger bills (Mortgage/Car Payment). The ability to instant-transfer funds between these accounts is the biggest selling point.

It is amazing how low the return on Savings Accounts really is these days.. I look forward to the economy improving a bit, so that rates can start to climb. Especially since we already refinanced and the ridiculously low rates don’t mean much to us any more.

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retirebyforty October 2, 2012 at 11:31 pm

I used ING for staging too, but I’ll give CIT a chance.
I’m looking forward to higher rates too. Once the rates improve I’ll build a CD ladder.

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Mike October 2, 2012 at 5:47 am

Looks very interesting! I might have to check out some of those banks!

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justpayitoff October 2, 2012 at 2:18 pm

i used to use ING for savings too, very user friendly, and vibrant color makes you want to go there everyday and deposit money too… but one thing i want to point out is since they dont have a branch anywhere, in case of emergency, you have to wait for 3-5 business days before your money becomes available into your account when you have to transfer it from your ING account. Another thing is you have to make sure you have filled out your beneficiaries God forbid something happens to you. I set the same savings account for my Mom in law too and did an automatic transfer every month, when she passed away, i had a hard time proving to them that i am the one who set it up, even if i have a POA to show them, since she didnt put any beneficiaries, its considered an estate except when you go to the court and have some paperwork filled out to claim it back. just a friendly advice, which is fairly understandable for an institution without a branch where you can walk in physically and show legal documents to.

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retirebyforty October 2, 2012 at 11:34 pm

I use the online saving account as a staging account. I have enough in my local credit union to cover monthly expense and a little bit extra. If I need more, I can put it on the credit card. I saw that when I applied for the CIT saving account. I put down my wife, but I should add my son and maybe my brother too. Thanks for the reminder.

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Sustainable Living Blog (Jeff) October 2, 2012 at 2:28 pm

Right now I’m just putting some small stuff in savings accounts – mostly building up the emergency fund and the house expenses fund (hopefully for a sprinkler system next summer). I dont mind leaving the money that liquid because I know I’ll be using it in the future.

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Roshawn @ Watson Inc October 2, 2012 at 5:01 pm

APY on savings accounts are not great right now. I just remember when they were over 5%. Now, that seems like a distant memory. Sigh!

Anyway, cushions are nice. It’s nice that you have executed your plan seamlessly!

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Cherleen @ My Personal Finance Journey October 2, 2012 at 11:21 pm

I wish to have a cash cushion. I wonder if it can give me a comfortable sleep as much as my favorite pillow does. LOL… Seriously, I hate fees, too. It was one of the reasons why I closed my account with Bank of America last year and moved to ING. I thought I had a good deal. Now, I need to check what CIT can offer me. Thanks for sharing!

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retirebyforty October 2, 2012 at 11:35 pm

If you don’t have a lot of money to put into an online saving account, Ally bank is probably the better deal.
CIT is best if you have $25,000 or more to deposit…

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katy October 3, 2012 at 2:40 am

Hi, RB40, would you do a post later on how you like CIT vs ING? My husband and I have save 3-6 months in expenses and are now considering on a more “liquid” savings account in the hopes of paying cash for a home in the next 2-3 years. We will see :). Thank you for this post!! I never comment, mostly lurk, but congratulations on Retiring by 40!!!!!! And yes, baby RB40 is so cute it does keep me coming to see pics of him too :).

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retirebyforty October 3, 2012 at 7:28 am

I will do a follow up post in a couple of weeks. It seems fine so far. ING has a nicer website from what I’ve seen so far. Thanks for coming by and complementing baby RB40. :)

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RichUncle EL October 4, 2012 at 9:46 am

Good job Joe, if I were you I would def do CIT and get the extra dollars, if the markets go down back to 2009 levels I would immediately do 25K more in dividend stocks or pay down the mortgage by 25K. Slowly but surely the dividend income is slated to increase every year. Dividend champions have been increasing for 50 years and I do not see anything affecting those companies in the next 50 years. You could practically double the $500 in interest with 25K dividend income from JNJ. Or if you use it to pay down mortgage debt then you will save all that expensive mortage interest and cut the time you have to pay it off.

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retirebyforty October 5, 2012 at 8:47 am

I probably sit tight on this reserve until 2014. I’m already invested in dividend stocks and a little extra dividend isn’t enough of an incentive for me to risk this reserve (for now.)

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Travis October 30, 2012 at 11:05 am

Just a quick follow-up. Quite a few people mentioned the $25,000 minimum for the CIT Bank savings rate yielding 1.05%. For those that don’t meet that minimum (yet!), they can look at a Sallie Mae MMA that yields the same 1.05% with no minimum amount required.

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Anton Ivanov | Dreams Cash True May 24, 2013 at 11:52 pm

I’m shopping around for a new place to put my own emergency and savings funds right now. Ally Bank and Capital One 360 are looking to be my top choices. I’ve read some customer complaints from both, but I think the high APY more than makes up for a few hiccups on their part.

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Ryan January 9, 2014 at 1:13 pm

Did you make an update to this post now that it is 2014?

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retirebyforty January 9, 2014 at 3:19 pm

I am in the progress of updating many older posts. Thanks for bringing this up. I’ll put this on high priority.

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