Best place to stash cash?

[doxeyweb]

i'm a new member, although ive been reading your post for years.
Thanks for all the good advice.

I wanted to get some opinions on where is the best and safest place to keep your short term cash reserves.
Mostly emergency funds, plus some additional cash savings that i dont plan on using in the next year or two.

Money Market Funds, Ibonds, CD's, or just a regular ol' savings account.

 

[W2R]

You will probably get a lot of opinions on this.

I keep my emergency funds in a local brick-and-mortar bank, where I can get it immediately in case of a true emergency. Unfortunately my bank doesn't pay much in interest, but oh well. My account is FDIC insured.

I keep the rest of my cash in Vanguard MM funds. I have most of that in Admiral Treasury Money Market Fund VUSXX which is pretty safe but only paying 1.76%. I have a smaller amount in Vanguard Prime MM Fund VMMXX, which is paying 2.25% but might be regarded as a little bit less safe. Money Market funds will soon be covered by something like the FDIC, but that hasn't happened yet and we have heard of one (only one) MM fund that has payed out 97 cents on the dollar recently, "breaking the buck".

I don't want to get involved in CDs right now unless they are very short term, because rates are so low.

Lots of people keep their money in internet banks with higher interest rates, like Ing (I believe they are offering 3%).

These low interest rates make me think of how people stashed money under their mattresses during the Depression. Almost sounds tempting (but not quite!)

 

[LOL!]

I use the Vanguard GNMA fund in my tax-advantaged accounts (4% YTD, 5% yield) and the Vanguard Tax-exempt money market fund in my taxable accounts (2.39% tax-free, so like 3.6% taxable).

I just experienced hurricane Ike and did not need any emergency cash at all, so I cannot imagine an emergency where one would need cash quicker than a few days. In the meantime, one can use credit cards for just about everything.

 

[W2R]

I just experienced hurricane Ike and did not need any emergency cash at all, so I cannot imagine an emergency where one would need cash quicker than a few days.

Wow, I'm glad you can't.

 

[FIREd]

I keep my emergency fund in a money market fund at Vanguard. I have check writing privileges on the account so I can get money pretty quickly if I need it. Although it is not FDIC insured, I have no fear of losing that money. But I would recommend sticking with a large, well-established and reputable company (Vanguard, Fidelity, etc...).

You can also look at online savings accounts (FDIC insured), they pay decent interest rates right now (3% at ING direct). That's probably the safest place for your money and right now it pays more interests than most money market funds.

For money you won't need for a year or two, you can look at CDs (also FDIC insured). They pay a bit more interests than online savings accounts (4-4.5% for 1-2 year CDs).

 

[freebird5825]

I'm right in lock step with want2retire, except instead of MM funds, I'm a TE muni bond fund lover (VNYTX and VWAHX), always with immediate check writing privileges.
this is not for my "OMG i need money right now" emergency fund, more like 2-5 year needs.
as long as the money i put there stays on the right side of VG rules against short term redemptions, everyone is happy. i haven't touched it yet, and i've been doing the TE muni bond fund thing for almost 5 yrs.

 

[Gotadimple]

As W2R says, you'll get many opinions, but you are looking to compare notes, so:

I keep most of my emergency money at my local credit union (checking, savings, and money market fund). I've found the MMF pays a higher yield than the sweep fund at my brokers (which is a muni MMF and so tax-free). The remainder is in CDs I buy through my broker.

It's also safer to split these funds between your bank and your broker so you don't exceed the FDIC limit if you are holding multiple years of cash.

Generally, I've found my credit union's rates on CDs to be better for terms of 3-9 months, with the broker offering better rates for 12 months or more. I wouldn't put money in CDs going out more than 2 years, if I were looking to park cash someplace today.

-- Rita

 

[Lsbcal]

Some decent advice above. Here is where I'm keeping some cash:
1) Wamu savings at 3.7%. Staying below the $200k FDIC insurance limit (for couples). If you are single that is $100k. I think staying with Wamu is my patriotic duty and the yield helps .

2) One month's savings in Vanguard Prime MM in case #1 has a brief hiccup.

3) For 2 years out money I'd suggest maybe Vanguard Short Term Federal at about 3.7% yield. Of course, this is a bond fund and not really a cash reserve. NAV can fluctuate.

 

[Alan]

Money Market Funds, Ibonds, CD's, or just a regular ol' savings account.

Yep, I have cash in all of those although the "regular ol' savings account" I use with Bank of Internet is actually an FDIC covered Money Market paying 3.4%. (my checking account with them also pays 3.4% )

 

[freebird5825]

Vanguard Short Term Federal at about 3.7% yield. Of course, this is a bond fund and not really a cash reserve. NAV can fluctuate.

excellent point about the NAV for any bond mutual fund!

my own experience with the 2 VG bond funds i like is very little wiggle in the NAV, but this MUST BE considered for the the time horizon of the "immediate" need.

 

[doxeyweb]

followup question

Here's a follow up question:

I currently have my cash in Vanguards Prime Money Market.
As Want2retire mentioned above, this "money market funds" are not (FDIC) insured.

Should i be concerned about this enough to move it back to a "money market account" at my local bank where it is FDIC insured.

Or are "money market funds" protected in some other way that makes them ok?

 

[Alan]

Here's a follow up question:

I currently have my cash in Vanguards Prime Money Market.
As Want2retire mentioned above, this "money market funds" are not (FDIC) insured.

Should i be concerned about this enough to move it back to a "money market account" at my local bank where it is FDIC insured.

Or are "money market funds" protected in some other way that makes them ok?

Currently they are protected by a government insurance scheme announced this week. Up until now, they were not protected but had never lost money, and it is not known how long the new government protection will last, but I shouldn't worry.

Recently VG issued assurances on its MMF.

The recent bankruptcy filing by Lehman Brothers Holdings Inc. and widespread turbulence in the financial markets have prompted a number of questions about the impact on Vanguard funds, including money market funds.
Vanguard is confident in the stability of its money market funds, all of which are managed with the objective of maintaining a stable net asset value of $1 a share. Vanguard continues to manage its money market funds very conservatively and with extreme prudence, focusing on high quality, short-term money market instruments.
All of the investments in our money market funds are closely examined by our Fixed Income Group's highly skilled and experienced credit analysts. Analysts assess the quality of each underlying issuer through in-depth credit analysis and do not rely on agency credit ratings.
Our largest money market fund is Vanguard Prime Money Market Fund, which currently holds more than half of its assets in U.S. Treasury and federal agency securities. In addition, Prime Money Market Fund has no exposure to money market instruments issued by securities dealers, including Lehman Brothers. It also has no exposure to securities of AIG, the insurance concern that is being supported by loans from the federal government.


Holdings of Vanguard Prime Money Market Fund (as of 8/31/2008)

U.S. Treasury: 36%
U.S. Agency: 17%
Certificates of deposit: 32%
High-quality commercial paper: 14%
Repurchase agreements: 1%

 

[FIREd]

My emergency fund is also in Vanguard's prime money market. I think the risk of losing money is quite low. Vanguard's reputation would suffer greatly if one of their MMF broke the buck and I don't think they would let it happen. Off course that's no guarantee.

The government has announced today that it is setting up a kind of money market fund insurance. Money market fund managers will have the choice to buy that insurance or not. If they do, then all deposits in that fund would be insured against losses. Of course it's too early to know whether Vanguard's prime money market fund will buy that insurance or not.

The government will also provide loans to money market funds facing massive redemptions, so that they don't have to liquidate the fund's assets and "break the buck" (heard on CNBC).

In case you are still worried, you could off course look at other money market funds. For example, Vanguard's treasury money market fund appears to be as safe as money market funds get (as long as the US treasury remains solvent that is). You would probably not take a lot of risk with their Federal money market fund either since Fannie and Freddie have now been nationalized.

 

[pedorrero]

The mattress has been looking like a really good place, the last week or month...

 

[FIREd]

The mattress has been looking like a really good place, the last week or month...

Unless your house burns down...

 

[cute fuzzy bunny]

Or after seeing the market close, you wet the bed.

I dont see anything in any of vanguards MM funds that gives me any concerns whatsoever, for what thats worth.

We keep around $500 at the credit union up the street that has atm's every 50' from one end of the state to the other, earning a pathetic nearly zero rate of return. Another 25k in the Prime MM with vanguards checking account faceplate on it. About 3 years worth of expenses in 6.25% cd's with penfed.

I think the key is spreading it around a little, dont chase yield, lock in some good cd rates when you can.

 

[DallasGuy]

Amtrust Direct has a e-savings account that is fairly easy to transfer money in and out of and it's currently paying 4.00% APY...hard to beat that for short term cash reserves that you can get at fairly quickly.

https://www.amtrustdirect.com/esavings/Pages/default.aspx

 

[CuppaJoe]

This changed over the years depending on factors such as age and number of years to retirement. I just retired last month so now have a few years living expenses in CDs and Ginnie Maes.

When I was young my portfolio was 100% equities, later I gradually added bonds and cash. For years I parked money in Ginnie Maes and only added the CDs, MM and bank savings accounts recently for retirement planning.

Like LOL! said credit cards can be used for emergency cash; I've had a couple of big sudden expenses where a credit card was not accepted so used a check from a Ginnie Mae account. I'm glad I requested checks for that account.

 

[kowski]

Amtrust Direct has a e-savings account that is fairly easy to transfer money in and out of and it's currently paying 4.00% APY...hard to beat that for short term cash reserves that you can get at fairly quickly.

https://www.amtrustdirect.com/esavings/Pages/default.aspx

Fine print shows rate only good for first 90 days. If I'm reading it right?
After the first 90 days, 4.00% APY reverts to standard tiered rate for balance on deposit after that time.

 

[doxeyweb]

Ibonds?

For short term $ (2-5yrs) that is not part of your emergency fund...
How would Ibonds fit into this. They currently have a locked 0% rate, but a calculated inflation adjusted 4.88% rate.

 

[Lsbcal]

For short term $ (2-5yrs) that is not part of your emergency fund...
How would Ibonds fit into this. They currently have a locked 0% rate, but a calculated inflation adjusted 4.88% rate.

Ibonds are fine if they are paying a decent real return. If we get some lower inflation that rate you mentioned will be pretty meager. Also you can now only buy $5k/yr. The government has effectively shut down this investment. For inflation protected securities check out TIPS (for tax advantaged accounts) -- likely to be a better deal going forward.

 

[deserat]

I have cash in MM accounts and checking accounts - most of it is in
USAA tax exempt money-market. Have had CDs, etc, too.

 

[willowbeezer]

I know a professional trader beginning to invest in hard assets. Real estate and gold. If you had a sizeable nest egg and are uncertain of the solvency of some of the financials (although perhaps remote if there is a bailout), you may want hard physical gold (not shares of gold companies nor gold futures). A version of money under the mattress but with appreciation potential in a crisis - and its fairly liquid.

I am 100% in cash and equivalents and will need to make changes. SIPC only covers $100k, CAPCO supplemental insurance taken out by fidelity has been put on credit watch (besides, they have no where near the amount needed to cover a melt down scenario).

I will start moving my money around to different institutions (Fidelity/Schwab, etc.) and will consider hard assets. maybe even a foreclosure.

CD's seems like a reasonable place for some of the cash in retirement accounts (I think a $210k fdic limit).