What to do with some extra money...

[CindyBlue]

We went to our bank yesterday and told them we have about $500k in savings to put somewhere, and would need to have it somewhere where it would not be affected by the $250K max in one bank rule for safety. We told them we are considering keeping the money somewhere safe, and they offered us a list of banks where they could put the money in CDs, and told that they would change a minimum of $3k per year to manage it for us, but we'd end up making 9k or so profit (I did the math with my calculator and came up with about the same numbers.)
On our way home we got to talking that we really don't like having to pay $3k every year - that really adds up. We are not wealthy people, and need to save and use every dollar carefully.
Does anyone have any ideas for us? We are not very knowledgeable in finances, so simple is better...

 

[TNBigfoot]

Many choices. Split into 3 accounts between different brokerages. Ladder into the best CD rates available.

 

[Aerides]

So you want this $500k to remain FDIC insured I take it? That means you need a couple of high yield CDs, without paying anyone anything.

Ally, American Express, PenFed, are all paying 2.7% or more on 2 year or longer CD's, some rates like that on shorter ones too. Or 3+ on longer CD's. You'd make comfortably over $12k at current rates, with no cost.

 

[CindyBlue]

Many choices. Split into 3 accounts between different brokerages. Ladder into the best CD rates available.

Thank you for replying!
Now, how do I do this? Do I just walk into a bank and ask them to put money into their CDs? Remember, I don't really have much of a clue...sigh...

 

[CindyBlue]

So you want this $500k to remain FDIC insured I take it? That means you need a couple of high yield CDs, without paying anyone anything.

Ally, American Express, PenFed, are all paying 2.7% or more on 2 year or longer CD's, some rates like that on shorter ones too. Or 3+ on longer CD's. You'd make comfortably over $12k at current rates, with no cost.

Thank you! How do I do this? Get online, and look up Ally bank and find a form to fill out? Is there anyone to talk to or is it all online? How do I send the money to them if I do this?

Arrggghh...I feel like such a neophyte (and I am.) We should have done something about this years ago...

 

[mrfeh]

Thank you for replying!
Now, how do I do this? Do I just walk into a bank and ask them to put money into their CDs? Remember, I don't really have much of a clue...sigh...

Whatever you do, please don't pay the bank $3K per year to do this for you. In fact, I suggest you not use the bank you spoke to, simply because they clearly are looking to make a buck off of you.

You only need to find 2 banks to stay under the $250K limit.

 

[mrfeh]

Thank you! How do I do this? Get online, and look up Ally bank and find a form to fill out? Is there anyone to talk to or is it all online? How do I send the money to them if I do this?

Arrggghh...I feel like such a neophyte (and I am.) We should have done something about this years ago...

First thing you need to decide: do you want to have unfettered access to this money? Or is it ok if you don't touch it for a couple years?

If the former, find a high yield savings account (like Ally). You'll earn 2.2% as of today.

If the latter, a CD would be a good option; you could earn between 2.5 and 3%.

FWIW, I wouldn't worry about the $250K FDIC limit, at least not with Ally. Others here may disagree with me.

 

[DenverGuy42]

We went to our bank yesterday and told them we have about $500k in savings to put somewhere, and would need to have it somewhere where it would not be affected by the $250K max in one bank rule for safety. We told them we are considering keeping the money somewhere safe, and they offered us a list of banks where they could put the money in CDs, and told that they would change a minimum of $3k per year to manage it for us, but we'd end up making 9k or so profit (I did the math with my calculator and came up with about the same numbers.)
On our way home we got to talking that we really don't like having to pay $3k every year - that really adds up. We are not wealthy people, and need to save and use every dollar carefully.
Does anyone have any ideas for us? We are not very knowledgeable in finances, so simple is better...

Just open a joint account/CD if you want. The FDIC insurance is per depositer - for a 500k joint account/CD, you'd be covered

https://www.fdic.gov/deposit/diguidebankers/documents/joint-accounts.pdf

as others have said, a bank that is going to charge you a 3k fee/year isn't a bank you should be using

 

[Aerides]

Thank you! How do I do this? Get online, and look up Ally bank and find a form to fill out? Is there anyone to talk to or is it all online? How do I send the money to them if I do this?

Arrggghh...I feel like such a neophyte (and I am.) We should have done something about this years ago...

Yes, Ally has everything online, but they also have phone support and they are pretty good at that too. They will take you through the steps by phone if needed. As far as getting them the money, it depends on where it is now. If it's just sitting in a checking or savings account somewhere, it's easy enough. It's pretty simple to do an ACH transfer online (and their phone rep will walk you through it).

It might take a few days and they might do small deposits and withdrawals for a test (like, 17 cents) and then you confirm a few days later that you saw the 17cents, and then they go "ok it works" and then do the whole deposit.

We all start somewhere!

 

[Spock]

You can buy brokered CDs from places like Fidelity where the CDs can be spread across multiple banks. $0 cost.
Since you have 500K, 2 joint account holders should be covered (250K each).
Here is an FDIC calculator to gauge your coverage https://www5.fdic.gov/edie/

 

[audreyh1]

We went to our bank yesterday and told them we have about $500k in savings to put somewhere, and would need to have it somewhere where it would not be affected by the $250K max in one bank rule for safety. We told them we are considering keeping the money somewhere safe, and they offered us a list of banks where they could put the money in CDs, and told that they would change a minimum of $3k per year to manage it for us, but we'd end up making 9k or so profit (I did the math with my calculator and came up with about the same numbers.)
On our way home we got to talking that we really don't like having to pay $3k every year - that really adds up. We are not wealthy people, and need to save and use every dollar carefully.
Does anyone have any ideas for us? We are not very knowledgeable in finances, so simple is better...

If this is a joint account, you are covered up to $500K together. It’s $250K per person.

Don’t pay anybody $3,000 to manage your CDs!

 

[CindyBlue]

Yes, Ally has everything online, but they also have phone support and they are pretty good at that too. They will take you through the steps by phone if needed. As far as getting them the money, it depends on where it is now. If it's just sitting in a checking or savings account somewhere, it's easy enough. It's pretty simple to do an ACH transfer online (and their phone rep will walk you through it).

It might take a few days and they might do small deposits and withdrawals for a test (like, 17 cents) and then you confirm a few days later that you saw the 17cents, and then they go "ok it works" and then do the whole deposit.

We all start somewhere!

Thank you for your understanding - I really do feel silly that I don't know more about this.
Ok, I'll ask the question about the elephant in my room...are Ally and other online banks safe? And will I be able to deal with them when I get old and not at my best, since I (or whoever takes care of me later) can't just walk into a building and ask them for help?

 

[CindyBlue]

You can buy brokered CDs from places like Fidelity where the CDs can be spread across multiple banks. $0 cost.
Since you have 500K, 2 joint account holders should be covered (250K each).
Here is an FDIC calculator to gauge your coverage https://www5.fdic.gov/edie/

Thank you!

 

[CindyBlue]

If this is a joint account, you are covered up to $500K together. It’s $250K per person.

Don’t pay anybody $3,000 to manage your CDs!

I'm glad our instincts were right on this - and so far, it's confirmed, since the prevailing opinion here agree (smile!)

We have a Bank of America in our small town...are they the kind of bank I could just walk into and open a CD? I I could look up their CD rates online. I'l bet...

Holy, cow... B of A CDs for two years are .10 %? How can some banks do 2.3% and some only give .10% ?

 

[euro]

Yes, Ally has everything online, but they also have phone support and they are pretty good at that too. They will take you through the steps by phone if needed. As far as getting them the money, it depends on where it is now. If it's just sitting in a checking or savings account somewhere, it's easy enough. It's pretty simple to do an ACH transfer online (and their phone rep will walk you through it).

It might take a few days and they might do small deposits and withdrawals for a test (like, 17 cents) and then you confirm a few days later that you saw the 17cents, and then they go "ok it works" and then do the whole deposit.

We all start somewhere!

Yes, it is quite simple. In fact, I just went through this very process with my 87-yo MIL. I offered to walk her through it step by step, but she ended up using the phone helpline and just did everything herself! She set up a High-Yield savings account (pays 2.3% interest currently) so she can move future money in and out more easily and then went ahead and set up a $250k one-year CD (2.8% interest).
This was with Synchrony (synchrony.com). However, I also do business with Ally (ally.com) and they offer pretty much the same process and the same rates.

 

[audreyh1]

Many choices. Split into 3 accounts between different brokerages. Ladder into the best CD rates available.

You don’t need to split into three different brokerages accounts for this! CDs purchased through a brokerage are offered by many FDIC institutions, and you just need to spread your CDs among multiple offering banks such that holdings don’t exceed $500K at any one bank.

A jointly owned CD is FDIC insured up to $500K as are joint holdings at any bank.

 

[CardsFan]

You don’t need to split into three different brokerages accounts for this! CDs purchased through a brokerage are offered by many FDIC institutions, and you just need to spread your CDs among multiple offering banks such that holdings don’t exceed $500K at any one bank.

A jointly owned CD is FDIC insured up to $500K as are joint holdings at any bank.

+1

I would split this into 10 CD's of $50k each. That way, if you do need to cash out something, you don't get hit with a penalty on the entire $500k.

Brokered CD's don't have a set penalty for early withdrawal, you simply sell at current market rates. Could be higher could be lower.

Another option would be a local credit union. This way you would have a brick and mortar place to go and the early withdrawal penalty's will be fixed (usually x months interest). Rates might be a little lower, but my CU is offering 2.4% for 2yr and 3.5% for 5yr. Not too bad.

 

[CindyBlue]

+1

I would split this into 10 CD's of $50k each. That way, if you do need to cash out something, you don't get hit with a penalty on the entire $500k.

Brokered CD's don't have a set penalty for early withdrawal, you simply sell at current market rates. Could be higher could be lower.

Another option would be a local credit union. This way you would have a brick and mortar place to go and the early withdrawal penalty's will be fixed (usually x months interest). Rates might be a little lower, but my CU is offering 2.4% for 2yr and 3.5% for 5yr. Not too bad.

Thank you!
Multiple CDs make sense, when you put it that way. Can each of them have that high rate? And are Credit Unions FDIC secure?

 

[Dtail]

We have CD's at Fidelity and Ally Bank.
Either place will take you through every step of the process and are very responsive.
I also have an account with Bank Of America (BOA). You can set up a transfer (ACH) relationship between the 2 banks. Again Ally Bank can help you with this setup.

BOA will not have competitive CD rates with Ally Bank/Fidelity. You do not need to have CD's with them, even with no fees.

Don't be afraid of online banks. They have the same FDIC protection like BOA.
You can still keep a BOA checking type of account and use them for notary/lockbox types of services.

 

[Al18]

Credit Unions typically provide $250K coverage per member thru NCUA.


The best source of information on CD's and Savings Accounts is https://www.depositaccounts.com/


You can learn who has the best rates, check the health of banks and credit unions, find the best rate locally to you (by selecting Banks-Bank Rates Map at the top of the page), etc.

 

[almosttime]

Please look at Mrfe’s post. Start there.
Do you need a portion of the money now? In a year? Two years?

 

[CardsFan]

Thank you!
Multiple CDs make sense, when you put it that way. Can each of them have that high rate? And are Credit Unions FDIC secure?

Each can have the same rate. Or you can ladder them with different durations and different rates. CU's have insurance thru NCUA, similar to FDIC.

 

[Spock]

Each can have the same rate. Or you can ladder them with different durations and different rates. CU's have insurance thru NCUA, similar to FDIC.

Just to expand on the term laddering since CDs are new to the OP:
The idea is you buy (for example) 4 CDs: a 3month, 6month, 9month, and a 12month. This is described as a 1 year ladder with 4 rungs. That way every 3 months you have 1/4 of your stash coming available should you need it. 3 months later when the shortest CD comes due if you don't need it you buy another 12 month. Same decision every 3 months.

You end up starting out with a lower over all combined % rate because the shorter CDs pay lower rates... but every 3 months you're rolling into the higher 1yr rate. In 9 months all CDs are earning 1 year rates, but you still got money coming available without penalty every 3 months.

Right now interest rates are dropping again... so you might change the above example to a 5 year ladder... 100K each rung 12 months or 50K to get money coming available without penalty every 6 months.

Fidelity even has tools to build the ladders for you if you want.

 

[OldShooter]

... Does anyone have any ideas for us? We are not very knowledgeable in finances, so simple is better...

Well, you have many good posts here about how to handle the CDs and to say that your bank is not looking out for your best interests if they propose to charge you $3K for doing basically nothing.

I'm going to respond more generally: I think you need to hire a financial advisor on an hourly basis to review your entire financial situation. You've given us very little information here; age? other assets? family situation? That's fine, you don't owe us any of that but it is also true that those are a few of the dimensions of your financial life that must be considered when making a plan. A good advisor will walk you though a very extensive list of questions, then will discuss planning objectives and risk tolerance with you. This can be paid for on an hourly basis or, more commonly, a flat rate, a few thousand dollars, to produce a plan. You can then consult with the advisor as your life happens and as things change. Most advisors would like to charge you an ongoing fee to manage your money, but you probably don't need that and should probably come back here for some more discussion if you are tempted.

You can find advisors here: https://www.napfa.org/financial-planning I suggest that you bias your search towards smaller shops, maybe 5-10 total people, because you will get more personal attention and not just some standard plan burped out by a computer. Also, remember that you are not trying to hire a friend. It is more like hiring a lawn service. It is skills that you are hiring, though a good empathy "fit" is also useful.

 

[Rich]

This thread had me thinking about CDs. Looked into Vanguard CDs. Much to my surprise, the one year CD pays 2.25%, while the 3, 6 and 9 month CDs pay more!


2.3% / 2.4% / 2.4% respectively.






Rich