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What are the options available for safe, short-term parking of funds?

Today I received an inheritance check for $250,000 (I am in the U.S) and I don't know what to do with it – at least in the short term. I have no debt at all and aside from a few deferred expenses, no immediate needs. I am not at all savvy about finances and have had a few bad experiences when trying to hire someone to help me (e.g. I contracted someone to come up with some investment suggestions, stating explicitly that I wanted no load funds (as I was paying him up front) and he came back with a half dozen suggestions in which he had direct involvement).

I am interested in options for safe, short "parking" of these funds until I figure out what I want to do. Saving accounts pay almost nothing in interest and I just don't know what else is out there.


Follow up

Thanks for all the help and suggestions. I went to my bank to open a savings account but the person there suggested I get a short term (3 month) CD since the interest rate for it is 1.0% compared to .02% for the savings account. After 3 months the CD rate drops but I should have a better idea of what to do with the money by then. Also, there is no penalty or fee if for some reason I need to access the funds before the 3 months have elapsed. And it is FDIC insured.

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    For what it's worth, the people here have no financial incentive to steer you in the wrong direction... or if they do, they have a damn good way of hiding it. fervently reviews JoeTaxpayer's answers for clues to his hidden agenda... – corsiKa Jul 21 '16 at 15:32
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    I would start with a tax adviser first. The IRS is going to want a piece of the action, and will penalize you if you make them wait until April 15th. – donjuedo Jul 21 '16 at 18:14
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    @JoeTaxpayer, worrying about taxes is distinct from "parking" funds, so I don't think I should add a formal answer. The reason to worry, though, is that the IRS collects inheritance tax (higher rate than ordinary income), and in layman's terms, expects quarterly tax payments, except for normal employment withholding. To underpay by more than some percentage will result in a penalty. I am not a tax accountant, so that's is why I recommend finding one. – donjuedo Jul 22 '16 at 18:19
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    @JoeTaxpayer, TurboTax says the estate pays the inheritance tax due to the IRS, but the individual pays the state inheritance tax: turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/… – donjuedo Jul 22 '16 at 18:25
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    The warning is fair enough. But your link shows only 8 states with such a tax. Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee. If Will is not from one of these states, the advisor is likely to tell him so, and send a bill for $250. I'm inclined, with your approval, to edit your first comment to include these states, and remove our dialog. – JTP - Apologise to Monica Jul 22 '16 at 18:32
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"Safe short term" and "pay almost nothing" go hand in hand. Anything that is safe for the short term will not pay much in interest/appreciation.

If you don't know what to do, putting it in a savings account is the safest thing. The purpose of that isn't to earn money, it's just to store the money while you figure out where to move it to earn money.

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    +1. I'd only add that $250,000 is exactly the FDIC insurance limit for protecting against the bank losing your money. If anyone else reading this question in the future has a bit more, they may wish to consider splitting it between savings accounts at two separate banks. – Mike Haskel Jul 21 '16 at 12:15
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    @MikeHaskel's comment may be worth incorporating into the answer, if only by mentioning that it's safest to keep the money stored with each bank below the insurance limit, whatever that may be. In Europe for instance it's typically €100K. (Anecdotally: a small bank here recently failed and a notary who had an escrow account there is currently on the hook for 500K out of a 600K balance. These things can happen without blowing up the entire banking system.) – Lilienthal Jul 21 '16 at 14:47
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    An alternative way to achieve @MikeHaskel's excellent suggestion of ensuring FDIC insurance is: some investment houses now offer financial instruments where they set up accounts on your behalf at banks that have non-zero interest rates and ensure that no bank is carrying more than the $250K maximum. My Fidelity health care spending account was set up like this by default, though of course it has nowhere near $250K in it. This might be a good way to park the money while trying to figure out how to invest it more profitably. – Eric Lippert Jul 21 '16 at 17:17
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I am sorry for your loss, this person blessed you greatly.

For now I would put it in a savings account. I'd use a high yield account like EverBank or Personal Savings from Amex. There are others it is pretty easy to do your own research. Expect to earn around 2200 if you keep it there a year.

As you grieve, I'd ask myself what this person would want me to do with the money. I'd arrive at a plan that involved me investing some, giving some, and spending some. I have a feeling, knowing that you have done pretty well for yourself financially, that this person would want you to spend some money on yourself. It is important to honor their memory.

Giving is an important part of building wealth, and so is investing. Perhaps you can give/purchase a bench or part of a walkway at one of your favorite locations like a zoo. This will help you remember this person fondly.

For the investing part, I would recommend contacting a company like Fidelity or Vanguard. The can guide you into mutual funds that suit your needs and will help you understand the workings of them. As far as Fidelity, they will tend to guide you toward their company funds, but they are no load. Once you learn how to use the website, it is pretty easy to pick your own funds.

And always, you can come back here with more questions.

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    "Giving is an important part of building wealth" Well, no. It's an important part of spending wealth. – Lilienthal Jul 23 '16 at 11:52
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    @Lilienthal building wealth without giving or, as you have put it, spending it, is a lonely affair. I cannot think of a more joyous and fulfilling aspect to wealth than the power it gives us to help others. What could be more important than that? Pete's is sound advice! – quant Jul 23 '16 at 13:22
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    @quant That's not at all what I said. I make no judgement on what people should do with their accrued wealth. I'm only pointing out that giving stuff away is, rather obviously, not a sound plan for getting more of said stuff. – Lilienthal Jul 23 '16 at 14:08
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    @Lilienthal: I think when Pete wrote about building wealth, he meant it in a more holistic way. – tomasz Jul 23 '16 at 19:55
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    @enderland Nonetheless, that is subjective (particularly without a citation), and certainly off-topic for this question, which asks for a safe short term place to store money. Giving is neither safe, short term, nor storing. In fact only the second paragraph of this answer is on-topic. – JBentley Jul 23 '16 at 20:49
1

Here's what I suggest...

  1. For now, put the money in the bank. It'll keep.
  2. Find some better interest rates than your stupid bank. Move some around.
  3. Start studying about other investments. As you feel comfortable with something, put SOME into it. You can always add more later if you feel right about it.
  4. Debt? Set some aside to pay it off.
  5. Want to buy something? Set some aside for that.

A few years ago, I got a chunk of change. Not from an inheritance, but stock options in a company that was taken private. We'd already been investing by that point. But what I did: 1. I took my time. 2. I set aside a chunk of it (maybe a quarter) for taxes. you shouldn't have this problem. 3. I set aside a chunk for home renovations. 4. I set aside a chunk for kids college fund 5. I set aside a chunk for paying off the house 6. I set aside a chunk to spend later 7. I invested a chunk. A small chunk directly in single stocks, a small chunk in muni bonds, but most just in Mutual Funds.

I'm still spending that "spend later" chunk. It's about 10 years later, and this summer it's home maintenance and a new car... all, I figure it, coming out of some of that money I'd set aside for "future spending."

1

What are the options available for safe, short-term parking of funds?

Savings accounts are the go-to option for safely depositing funds in a way that they remain accessible in the short-term.

There are many options available, and any recommendations on a specific account from a specific institution depend greatly on the current state of banks.

As you're in the US, If you choose to save funds in a savings account, it's important that you verify that the account (or accounts) you use are FDIC insured. Also be aware that the insurance limit is $250,000, so for larger volumes of money you may need to either break up your savings into multiple accounts, or consult a Accredited Investment Fiduciary (AIF) rather than random strangers on the internet.

I received an inheritance check...

Money is a token we exchange for favors from other people. As their last act, someone decided to give you a portion of their unused favors. You should feel honored that they held you in such esteem.

I have no debt at all and aside from a few deferred expenses

You're wise to bring up debt. As a general answer not geared toward your specific circumstances:

Paying down debt is a good choice, if you have any. Investment accounts have an unknown interest rate, whereas reducing debt is guaranteed to earn you the interest rate that you would have otherwise paid.

Creating new debt is a bad choice. It's common for people who receive large windfalls to spend so much that they put themselves in financial trouble. Lottery winners tend to go bankrupt. The best way to double your money is to fold it in half and put it back in your pocket.

I am not at all savvy about finances...

The vast majority of people are not savvy about finances. It's a good sign that you acknowledge your inability and are willing to defer to others.

...and have had a few bad experiences when trying to hire someone to help me

Find an AIF, preferably one from a largish investment firm. You don't want to be their most important client. You just want them to treat you with courtesy and give you simple, and sound investment advice. Don't be afraid to shop around a bit.

I am interested in options for safe, short "parking" of these funds until I figure out what I want to do.

Apart from savings accounts, some money market accounts and mutual funds may be appropriate for parking funds before investing elsewhere. They come with their own tradeoffs and are quite likely higher risk than you're willing to take while you're just deciding what to do with the funds.


My personal recommendation* for your specific circumstances at this specific time is to put your money in an Aspiration Summit Account purely because it has 1% APY (which is the highest interest rate I'm currently aware of) and is FDIC insured. I am not affiliated with Aspiration.

I would then suggest talking to someone at Vanguard or Fidelity about your investment options. Be clear about your expectations and don't be afraid to simply walk away if you don't like the advice you receive. I am not affiliated with Vanguard or Fidelity.

* I am not a lawyer, fiduciary, or even a person with a degree in finances. For all you know I'm a dog on the internet.

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The person who told you "no-load funds" had the right idea. Since you are risk-averse, you tend to want a "value" fund; that is, it's not likely to grow in value (that would be a "growth" fund), but it isn't like to fall either.

To pick an example more-or-less at random, Fidelity Blue Chip Value Fund "usually" returns around 8% a year, which in your case would have meant about $20,000 every year -- but it's lost 4.35% in the last year.

I like Fidelity, as a brokerage as well as a fund-manager. Their brokers are salaried, so they have no incentive to push load funds or other things that make them, but not you, money. For intermediate investors like you and me, they seem like a good choice.

Be careful of "short term". Most funds have some small penalty if you sell within 90 days. Carve off whatever amount you think you might need and keep that in your cash account.

And a piece of personal advice: don't be too risk-averse. You don't need this money. For you, the cost of losing it completely is exactly equal as the benefit of doubling it. You can afford to be aggressive.

Think of it this way: the expected return of a no-load fund is around 5%-7%. For a savings account, the return is within rounding error of zero. Do you spend that much, $15,000, on anything in your life right now? Any recreation or hobby or activity. Maybe your rent or your tuition. Why spend it for a vague sense of "safety", when you are in no danger of losing anything that you need?

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    Having the money invested in a fund, even a no-load or low-cost fund means that it gets tied up in that fund. This is answering what to do with the funds once the OP makes a decision of how to use them rather than what do with the funds in the short term while evaluating investments. – Freiheit Jul 21 '16 at 21:43
  • How short is the short-term? Anything less than 90 days, put it in your checking account. More than that, no-load (not low-load) fund. – Malvolio Jul 22 '16 at 1:18

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