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Where to keep cash?
Old 01-06-2013, 05:13 PM   #1
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Where to keep cash?

This is not another alternative to cash thread, and not a CD thread, it's a best place to keep liquid cash question? Though Vanguard was/is supposedly considering getting into online banking, I'm tired of waiting and getting a 0.02% return on VMMXX. So I am researching options for savings. The local banks seem to be in the 0.25% range, but it appears I can get 0.75-1.0% at Ally, PenFed or ING for example. I know I'll be limited to X transactions/month or /year and there will be a minimum account $ - no problem with either for a higher rate. I know I've seen references to PenFed and Ally here, though much of that has been re: CDs - not "savings." Am I missing something?
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Old 01-06-2013, 05:22 PM   #2
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Is this for funds that need to be immediately liquid, or that you might need and can't risk, but can tie up for a while? If it is the former, then I would point you to the usual suspects for online savings accounts: ING, Discover, Sallie Mae, etc. If it is the latter, it is currently hard to beat Pen Fed CDs and I bonds.
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Old 01-06-2013, 05:27 PM   #3
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Originally Posted by Midpack View Post
This is not another alternative to cash thread, and not a CD thread, it's a best place to keep liquid cash question? Though Vanguard was/is supposedly considering getting into online banking, I'm tired of waiting and getting a 0.02% return on VMMXX. So I am researching options for savings. The local banks seem to be in the 0.25% range, but it appears I can get 0.75-1.0% at Ally, PenFed or ING for example. I know I'll be limited to X transactions/month or /year and there will be a minimum account $ - no problem with either for a higher rate. I know I've seen references to PenFed and Ally here, though much of that has been re: CDs - not "savings." Am I missing something?
I have a huge amount of respect for you, Midpack, and appreciated you letting me help bring the class of 2011 in for a safe landing

Regarding cash, I don't mind VG MMF returns. I think the trick is to keep only the amount you need there - it's still better than stuffing in the mattress!
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Old 01-06-2013, 05:34 PM   #4
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Regarding cash, I don't mind VG MMF returns. I think the trick is to keep only the amount you need there - it's still better than stuffing in the mattress!
The problem with money market funds is not their returns, it is the fact that you are accepting a lower yield for a riskier instrument than you find in a full-faith-and-credit bank accoint or tresury instrument.
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Old 01-06-2013, 05:37 PM   #5
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You can connect an Ally savings account to your local bank checking account and transfer funds in three business days. This can be setup and done all online.
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Old 01-06-2013, 05:44 PM   #6
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Is this for funds that need to be immediately liquid, or that you might need and can't risk, but can tie up for a while? If it is the former, then I would point you to the usual suspects for online savings accounts: ING, Discover, Sallie Mae, etc. If it is the latter, it is currently hard to beat Pen Fed CDs and I bonds.
Even though I don't do buckets, it's my cash bucket. It's too much for iBonds, but I'd expect transactions about quarterly on average, the money I don't want tied up in CDs.
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Old 01-06-2013, 05:45 PM   #7
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Regarding cash, I don't mind VG MMF returns. I think the trick is to keep only the amount you need there - it's still better than stuffing in the mattress!
And for cash over and above MMF?
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Old 01-06-2013, 06:04 PM   #8
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And for cash over and above MMF?
Well, I've been putting mine in GNMAs, we'll see how that works out!
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Old 01-06-2013, 06:37 PM   #9
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My first reaction when I read this was "in my underwear drawer". But I guess that would limit my AA.
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Old 01-06-2013, 06:43 PM   #10
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Thanks for starting this thread. I've been sitting on too much cash, and just opened an Ally savings account. Very simple, very easy.... .95% beats what my credit union was paying, which was beating what my bank is paying....
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Old 01-06-2013, 07:34 PM   #11
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Originally Posted by Midpack View Post
This is not another alternative to cash thread, and not a CD thread, it's a best place to keep liquid cash question? Though Vanguard was/is supposedly considering getting into online banking, I'm tired of waiting and getting a 0.02% return on VMMXX. So I am researching options for savings. The local banks seem to be in the 0.25% range, but it appears I can get 0.75-1.0% at Ally, PenFed or ING for example. I know I'll be limited to X transactions/month or /year and there will be a minimum account $ - no problem with either for a higher rate. I know I've seen references to PenFed and Ally here, though much of that has been re: CDs - not "savings." Am I missing something?
My liquidity is in Discover Bank online savings account - pays 0.8% FDIC insured (~ one year of living expenses). Then another year in Vanguard Short-Term Investment Grade Fund (~ 2% distribution yield).
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Old 01-06-2013, 07:38 PM   #12
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I gave up on cash long ago. I guess I am OK with losing 5-8% in a short-term bond fund nowadays since over the past 2 years the gains have been about that, so the loss would bring me back to VMMXX returns. Every day the short-term bond fund doesn't drop in value is another day of bliss.

Or one could shift their asset allocation to have less equities. For example, instead of 60:35:05 stocks:bonds:cash, one could go 55:45:00. Or something like that.

Now there are lots of articles about not reaching for yield. Here's one I liked where Larry Swedroe has some thoughts:
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield - Seeking Alpha

But with only little bit in cash, the difference between earning 0.02% and 1.0% amounts to about the cost of one restaurant dinner, right? Thus, I would not get too worked up about finding the best place as one's checking account is probably going to be just fine.
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Old 01-06-2013, 08:21 PM   #13
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Even though I don't do buckets, it's my cash bucket. It's too much for iBonds, but I'd expect transactions about quarterly on average, the money I don't want tied up in CDs.
One idea: The Ally Savings accounts and their MM accounts both pay 0.95% (the savings account is FDIC insured. Both give you good access to your money--ATMs, etc). But the 4-year "Raise your Rate" CDs pay 1.35% and the interest penalty for early withdrawal is only 60 days interest. So, you'll be money ahead with the CD once your money has been there about 7 months or so (I didn't do the math)--after that it is all "extra" compared to a savings account or MM. So, don't even think of it as a 4 year CD--it's an "I can get my money whenever I want it but I'll be ahead of the game after just 7 months" CD. And, if Ally's rates on that product go up you can ask for the increased rate--up to two times in the 4 years.
You could put a small amount in the savings account (to provide immediate emergency cash through ATMs or wire transfer to your MF company), and put the bulk in CDs. When the mood strikes, liquidate the CDs to your Ally savings account and wire the funds where you want
em.
Obviously, confirm all of that with Ally--I've only set up CD's with them.
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Old 01-07-2013, 05:36 AM   #14
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Ally would be my choice now. When I was making the choice, ING was better. Discover Bank was also up their pretty high, as is Everbank.

But I found that a local credit union offers 4% interest on the first $3000 (and 0.25% after that), so once my spouse gets over the shock of us opening so many new accounts recently, I may take advantage of that. It's only about $90 a year, but it also gives us a local bank presence so we can get cashiers checks and such if we ever need it.
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Old 01-07-2013, 09:53 AM   #15
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Add American Express Bank to the list. Easy to set up and transfers can be scheduled.

ING was recently purchased by CapitalOne. For now, its rates are better than CapitalOne but not as attractive as at Ally or Amex. Not sure what will be happening, but I suspect the rates will drop as they get further absorbed.

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Old 01-07-2013, 10:39 AM   #16
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Our credit union is currently paying 1.78% on rewards checking accounts up to $10k, then 0.21% on balances above that. That's been our cash account for a few years. It used to allow $20k to get the full interest rate. It essentially has a zero duration as they say in bond fund speak.

The next level up in duration for us is ST Investment Grade fund (VFSUX, duration = 2.3 years) from Vanguard. So I'll keep maybe $15k in the credit union account and as it approaches $10k, I'll sell some VFSUX and electronically transfer it.

If the Fed starts raising rates I might create another step in this system so the ST IG fund keeps money around for at least its duration.
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Old 01-07-2013, 11:15 AM   #17
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It appears some of you don't subscribe to keeping 1, 2 even 3 years of cash on hand once you retire. I only kept an emergency fund when I was working, now I've let cash grow to 2-3 years worth of annual expenses.

At any rate I will visit my local bank as a courtesy this week, and then most likely open an account with Ally (though I despise GM, long boring story) or another online bank...
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Old 01-07-2013, 11:29 AM   #18
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Quote:
Originally Posted by Gotadimple View Post
Add American Express Bank to the list. Easy to set up and transfers can be scheduled.

ING was recently purchased by CapitalOne. For now, its rates are better than CapitalOne but not as attractive as at Ally or Amex. Not sure what will be happening, but I suspect the rates will drop as they get further absorbed.

-- Rita
Do you know whether it's possible to electronically transfer funds to the American Express savings account from a brokerage account or a mutual fund account - initiated from the brokerage/mutual fund account?

Fidelity says that bank "non-passbook savings accounts" are eligible for electronic fund transfers, so I'm wondering if the American Express Bank "high yield" savings account would fall in that category.
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Old 01-07-2013, 12:13 PM   #19
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You can connect an Ally savings account to your local bank checking account and transfer funds in three business days. This can be setup and done all online.
I do this frequently but learned the hard way with Band of America because they charge a fee to transfer funds. So, the way out of this is to request the transfer through ALLY. So when I want to transfer funds from BOA to ALLY, I ask ALLY to request the funds from BOA. No fee. Also, I have noticed that funds requested by ALLY from BOA only take two days as opposed to three days. Maybe not guaranteed, but common.
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Old 01-07-2013, 12:43 PM   #20
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I do this frequently but learned the hard way with Band of America because they charge a fee to transfer funds. So, the way out of this is to request the transfer through ALLY. So when I want to transfer funds from BOA to ALLY, I ask ALLY to request the funds from BOA. No fee. Also, I have noticed that funds requested by ALLY from BOA only take two days as opposed to three days. Maybe not guaranteed, but common.
I transfer funds between my BOA checking account and my Fidelity accounts all the time. I always initiate it from Fidelity, so I've never paid a fee.
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