I have to meet a few of Mrs. RB40’s conditions before I can quit my corporate job. One of them is for us to save $50,000 in cash. (I negotiated down from 100k because I really think that is way too much cash.) We’ve been working on it for a while and we finally made it this month!
We have been diligently socking away my paycheck every month into the savings account at our credit union. The interest rate on our saving account is 0.25%. We’ll get only $125 of interest per year if we keep the money at our credit union. This is quite a bit lower than inflation and I thought we should find a better alternative.
The main criteria we have for this $50,000 is to keep it liquid. If we need to use some of this, we need to be able to get it in a week at the most. With this criteria, we eliminated pretty much all investments. Here are some other choices.
- Stash it under the mattress – not a good idea. The bed will be lumpy and uncomfortable. Nobody will be happy with that.
- Keep it at our credit union. This is not a bad choice for a saving account, but the interest rate is just not good enough for a big stash. This option gives the maximum flexibility.
- Put it in an online bank. A few banks has around 1% interest rate. That’s not bad.
- Build a CD ladder. This is probably the safest way to stash the money and get a bit more interest than the saving account.
- I can open a saving account in Thailand and get 2.5% on 6 month CD. Although, the currency exchange fee will cut into the gain and the exchange rate is not great at this time. Perhaps I need to look into this further.
- Readers suggested option – I-bonds @ 3% interest rate and a pretty low penalty (3 months interest.)
- Any suggestions? Keep in mind, this amount cannot go down and needs to be liquid, so no gold, stock, or bonds.
I’m leaning toward building an I-bonds ladder.
The classic way to build a CD ladder is to break up $50,000 in to 5 pieces. Then you use $10,000 to buy 1 year CD, another $10,000 to buy 2 years CD, and so on. After one year, then you can collect the money from the 1 year CD and use that to buy a 5 year CD. Eventually, you will maximize the interest rate and have penalty free access to some of your money every year. You can do the same with I-bonds.
CD rates are also very low at this point. It’s not much better than the online saving account and I don’t think it’s really worth it right now.
Open an Online Saving Account with good interest rate
After over a year of not having a full time job, we haven’t had to dip into our $50,000 cash saving. I reallocated this cash toward my dividend portfolio and I’m keeping $20,000 an online Saving account. The dividend portfolio is better for the long term because we’ll get the dividend and the long term growth from the stock which is currently much better than 1%. The stock market is volatile, but our investment horizon is still about 20 years so we have plenty of time to recover from a set back.
What would you do with $50,000?
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For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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