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What do I do with $55,000 sitting in my savings account? I've gone through some life struggles, but finally back on my feet. I fortunately have my 401k intact, and this money is more a rainy day, so it needs to be accessible within 2-3 weeks as cash. Any advice? I'm getting 1.2% right now on it with Discover, but I don't know if I can do better. I know it's not alot, but if I could get even an extra 1% per year, that enough to take a little trip.
By definition if this money is "rainy-day" funds, then you should NEVER touch it, invest it, or do anything with it other than what you're already doing - putting it into CDs, savings accounts, etc.
That also means you should never be using it to "save up for trips." By definition, if its rainy day, you DO NOT TOUCH. Period. What if you slip and aren't on your two feet again? I would keep it stashed there.
Now, assuming you can save more money now, keep that money wehre it is, and invest any ADDITIONAL savings.
If you can save up another $3k - $5k, you can open up an account with a mutual fund or a fund like the Vanguard funds, preferably a low-load one, and then you can add to it every month and watch it grow. It will be riskier, but with higher risk comes greater reward over the long term.
So in short: DO NOT TOUCH your rainy day funds, EVER. Save additional money and grow it. That's what I'd do.
Life will always be a struggle, never touch your rainy day fund until your next struggle (cause it WILL happen)... 1.2% isn't that bad, sad as it is, its actually pretty good in these dark times... but the bad thing about Discover is its probably an online bank... access to your money isn't as good as a traditional bank but I suppose that's why their interest rates are a bit higher than regular banks...
I will take the contrarian view. 1.2% is a pittance. I agree with not spending it on taking trips or whatever, but there is no reason you shouldn't invest it. I am not saying you should put it all on junk bonds or risky equities. There are plenty of solid mutual funds that involve only a little risk or stable dividend paying equities. Is there more risk involved? Sure. But IMHO the risks are worth it. Especially if inflation kicks in.
You never get ahead at 1.2%. Just run the numbers.
$55,000 x 1.2% = $660. Depending on your tax bracket, you are losing a lot of that in taxes.
As an example, Altria (simply an illustrative example, not saying to buy it) closed Friday at $25.32. $55,000 gives you 2172 shares. Each quarter they pay 38 cents a share or $852.36 a quarter, $3,301.44 a year. Plus you only pay 15% as capital gains.
Great advice! I mean, I'm not really worried about this money, with my expenses low, and a decent income, I am saving a ton each week... I just figure that I might as well do something with it.
I honestly spend about $25,000 a year in all, and clear $60,000 after my new promotion kicks in (Monday)... So I definitely could afford to either live a nicer lifestyle (seeing as I'm unmarried, this won't go anyone as of now), or get more...
TN_Someday, if that is the case, then I stand by my original argument that you should keep this hidden, squirreled away, and only keep up with inflation by making sure there's 6 months of rainy day money available. I have 4-5 months hidden away that I DO not touch.
IF you want to take a risk with it ... at riskiest only consider high quality to moderate investment grade bond funds. Do not think about muni bonds or state bonds. I do think Vanguard can help with that too, their short-term investment grade fund is 0.7% return YTD, that's already half your current annual return in just two months. Remember, this is your rainy day money.
If I were you I'd consider putting it into a money market account. Usually those have higher returns.
Now that you can save a lot of money a month, do exactly that - save. Save it into a Vanguard account. Check out their funds.
Also check out mathjak portfolio (he's a member on C-D here). 25x4: 25% bonds, 25% cash/Tbills, 25% large cap, 25% whatever (small cap, mid cap, international, etc). Keep it in index funds or mutual funds.
The fact you're in your low 30s and hope to retire someday only reinforces the fact you should save now. If you save $1000 a month, in today's dollars, adjusting for inflation as we go along, and put it into a diversified portfolio, assuming 8% return (not unheard of for aggressive, managed funds), you should have almost $700,000 in today's dollars in your account by the time you reach 62. Add it to the funds you're saving in your 401(k) and you should have a very nice nest egg to rely on for income when you retire. DO NOT COUNT on Social Security being there (if the future holds any inkling of the things to come, I see a BIG cut coming), and DO NOT COUNT on any pension (there's hardly any out there anymore, and the ones that do exist are mostly in stock).
The rest of the money you should be saving to buy a home, save for a marriage and kids (if not already part of your life / if part of your goals in life), and of course, party money. Go see Thailand, Japan, and China. Go see Croatia and the Czech Republic. Go see Russia.
Why don't you do both? Keep $30k the way it is and invest the other $25k in CDs, mutual funds, stocks or whatever. At the rate you're saving, you could easily do direct deposits back into the Discover account nice and slow while the other investments grow. You don't have to put all your eggs in just one basket.
Bucket system....leave 10K in cash, 10K in a cd, 10K in T-bills or whatever and so on and so forth ending with 10K in mutual funds. That way you have money on all levels of risk and you have a better rate of return in general for your money. Meanwhile, if you get in trouble you have the 10K in cash and can cash out the other ones as you need to and as the time is right.
An emergency fund should be 6-9 mo. of expenses. This would self insure you against life's hiccups. I would hope that $55K would be much more than 6-9 mo. of expenses. This money should be in a risk free type of money market, CD's, savings etc. Don't worry about interest rate and don't touch it for anything less than an emergency.
Beyond that, I would be investing in good quality mutual funds for growth. This investing could be for purchasing future big ticket items etc. Most important... Only borrow money on things that are sure to go up in value.
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