Put idle savings to use while keeping them liquid

Question

Since I graduated from college, I've collected ~$15K USD of savings. Currently this is sitting idle in a low interest checking account. I'd like to put it to better use, but I also need to make sure I can draw on it if necessary. Should I go for a high-yield checking account, or is there a better option?

Answer 1

First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing.

If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.

Answer 2

I suppose it depends on how liquid you need, and if you're willing to put forth any risk whatsoever. The stock market can be dangerous, but there are strategies out there that will allow you to insure yourself against significant loss, while likely earning you a decent return. You can buy and sell options along with stocks so that if the stock drops, your loss is limited, and if it goes up or even stays where it's at, you make money (a lot more than 1% annually).

Of course there's risk of loss, but if you plan ahead, you can cap that risk wherever you want, maybe 5%, maybe 10%, whatever suits your needs. And as far as liquidity goes, it should be no more than a week or so to close your positions and get your money if you really need it.

But even so, I would only recommend this after putting aside at least a few thousand in a cash account for emergencies.

Answer 3

Since you're coming out of college, you're probably a new investor and don't know too much about stocks, etc. I was in the same situation as well. I wanted to keep my cash 'liquid' and wanted to make low risk investments.

What I ended up doing was investing the majority of my money in higher interest GICs (Guaranteed Investment Certificate) and keeping the rest in my chequing/savings account. I understand that GICs aren't exactly the most liquid asset out there.

However, instead of investing it all into 1 GIC, I put them in to smaller increments with varying lock-in times and roll-over options.

I.e. for 15000 keep $3000 on hand in your account 2x$1000 invested for 2 years 4x$1000 invested for 1 year 3x$1000 invested for 180 days 3x$1000 invested for 90 days

When you find that you run out of cash from your $3000, you'll have a GIC expiring soon. The 'problem' with GICs is that redeeming them before the maturity period usually incurs a penalty in the form of no interest. Keeping them in smaller increments allows you to redeem only the amount you need without losing too much interest. At maturity, if you don't need the money, you can just have the GIC renew.

The other problem with GICs, is that interest rates, though better than savings accounts, aren't that much more. You're basically just fighting off inflation. The benefit is that on maturity, you are guaranteed your principal and the interest.

This plan is easy to implement if your bank/credit union allows you to create and manage GICs online.

Answer 4

I would suggest a high interest checking account if you qualify, or if you don't, an Investor's Deposit Account (IDA).

Answer 5

Provide you are willing to do a bit of work each month, you should apply for a "rewards checking" account. Basically these accounts require you to set up direct deposit (can be any amount and your employer can easily deposit $25 into one account and the rest into another if you like). They also require you to use your debit card attached to the account (probably about 10 times per month).

Check out the list on the fatwallet finance forum. Right now the best accounts are earning over 4%.

Answer 6

I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!

Answer 7

I'm new to this, but how about putting a big part of your money into an MMA? I don't know about your country, but in Germany, some online banks easily offer as much as 2.1% pa, and you can access the money daily. If you want decent profit without risk this is a great deal, much better than most saving accounts.

Answer 8

This may sound a little crazy but I would take $5K of that money and buy whiskey with it (Jack Daniel's would be my preference).

My guess is that in 5 years that whiskey will be worth more than the $10K you put in the bank. I just can't see how the dollar survives the next 5 years without a major downward adjustment.

If I'm wrong then you have a nice party and give whiskey for Christmas gifts.

If I'm right at least you will have some savings instead of $15K of useless dollars.

Here is my justification for converting your US dollars into tangible assets. Do you really think the money printing will ever stop?