5

I'm sticking to the question that I'm asking but here's the background.

I make decent pay and I'm also self employed. I invest money in an IRA at my own discretion each month, so I'm covering my bases for long term savings.

However, my wife and I have a full "emergency fund" set aside and since I'm a US citizen, each quarter I have to pay quarterly taxes. To be safe, I always over-estimate what I will need to pay each quarter in taxes and the net-effect of my money situation is that I have a sizable chunk of cash that has to be accessible for "just in case" events or sizable tax payments every quarter.

My desire is to put some of this money in some form of liquid account that is earning better interest than a money market. I'm not really interested in stocks, mutual funds, or even corporate/munis bonds. But, I would like to think that there is some form of account that can do better than 1% APR which is what I'm getting with my current money market. Preferably, I'd like to find an account that is earning in the 2-3% APR range just to keep up with inflation, but anything that's better than money markets would be fine.

I'm not really asking for investment advice, per se, but I would like to know if there is anything out there that I could shove a percent of my money in that is still liquid but will earn a little more than a money market. In my case, I'm willing to sacrifice a bit of safety (e.g. FDIC insured) for a couple extra percentage points on the investment.

Does such a thing exist within the US?

  • Bonds are about as close as you can come to "guaranteed income" over a money market, but they aren't nearly as liquid as money markets. Keep in mind that a 1% bump in interest on a $20,000 balance in 6 months is about $100. – D Stanley Mar 30 '17 at 16:07
6

Everyone would like a savings/checking account that has the same liquidity as others but pays multiple times as much, but such a thing would break the laws of finance. The thing keeping savings and checking accounts cheap isn't particularly the FDIC insurance but the high liquidity and near certainty that you will not lose money.

In all of finance you are compensated for the risk (and perhaps illiquidity) you bear. If you insist on a risk-free and highly liquid investment, you will get the risk-free and highly liquid rate, which is currently around 1%. Doesn't matter what type of investment it is (savings, money market, treasuries, etc.). Money market funds, in particular, were designed to be a replacement for savings accounts. They have decent liquidity and almost no risk (and no FDIC insurance). But they earn about what good savings accounts do, because that's what risk-free investments earn.

If you wish to earn more you must decide what you will give up:

  • Certainty of not losing money
  • Ability to access your money at short notice

Decide on one (or both) of those to sacrifice and you will find yourself with options.

  • To be clear, I'm not asking for "risk free". Instead, I'm looking for something with minimal risk, thus a lower rate, but high liquidity. I'm trading the insurance for the higher rate. – RLH Mar 30 '17 at 18:57
  • According to finance theory, the way to get 2% with minimal risk is to move enough of your money out of your savings account and into a fully diversified portfolio of stocks and bonds that the two pots together have an expected return of 2%. Minimal, here, means as little risk as possible to get to the expected return you desire. The preclusion of stocks, bonds, and funds, therefore, is in direct opposition to achieving your goal of an expected return with minimal risk. – farnsy Mar 30 '17 at 23:13
3

There are lots of credit unions that are insured by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF) instead of the Federal Deposit Insurance Corporation (FDIC). Both cover individual accounts up to $250,000.

If you are looking for non-trivial returns on your money, you should consider a brokerage account which is insured by the Securities Investor Protection Corporation (SPIC). In the case of SPIC insured accounts, what you are insured against is the failure of the broker (not against loss on your investments if you choose to invest poorly). SPIC insurance covers up to $500,000 in losses from an insolvent broker.

You have already indicated your lack of interest in using other investments, but I am not aware of any non-insured accounts that offer higher interest than insured accounts. You have also indicated your lack of interest in investment advice, but it sounds like what you are looking for is offered by a stable value fund.

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