Looking for good investment vehicle for seasonal work and savings

Question

I am looking for an ideal investment vehicle for the following situation a family member is in (and for which I'll soon be in also, as we both perform the same work).

Our work is seasonal, and it results in us earning extra money for the majority of the year which we use for a "low season" (a few months within the year) during which we may earn little/no money. In addition to this "rotating sum," my relative also has around $3 - 4K in savings, just "for a rainy day." We are wondering if there is an investment vehicle which would enable him to earn interest on all those funds, but at the same time allow for unlimited (or at the very least, a high number of) withdrawals, as he has to dip into part of these funds during our "low season" to pay his bills. So basically, this would be a fairly active account, with credits and debits happening on a regular, even if infrequent, basis.

I am asking this because my friend has a savings account right now, and I feel that the interest rates for those is a joke. I currently have an account with a credit union, and it's only slightly more. I feel that there has to be something better than these. We've even considered pooling our funds together, since we're family...we are thinking that more money would bring more options (and of course, result in better interest).

I would greatly appreciate some expert input and advice...thanks!

Answer 1

Most online "high yield" savings accounts are paying just above 1%. That would be 1.05% for American Express personal savings, or 1.15% for Synchrony Bank‎ (currently).

Depending on the length of the season, you might want to work in some CD's. Six months CDs can be had at 1.2%, and 9 month at 1.25%. So if you know you won't need some of your earnings for 9 months, you could earn 1.25% on your money.

However, I would proceed with caution on anything other than the high yield savings account. With your one friend having such a low emergency fund, there is very little room for error. Perhaps until that amount is built up into something significant, it is just best to stick with the online savings.

Of course, one solution would be to find a way to create income during the off season. That will go a long way into helping one build wealth.

Answer 2

There are no risk-free high-liquidity instruments that pay a significant amount of interest. There are some money-market accounts around that pay 1%-2%, but they often have minimum balance or transaction limits.

Even if you could get 3%, on a $4K balance that would be $120 per year, or $10 per month. You can do much better than that by just going to $tarbucks two less times per month (or whatever you can cut from your expenses) and putting that into the savings account. Or work a few extra hours and increase your income.

I appreciate the desire to "maximize" the return on your money, but in reality increasing income and reducing expenses have a much greater impact until you build up significant savings and are able to absorb more risk. Emergency funds should be highly liquid and risk-free, so traditional investments aren't appropriate vehicles for them.

Answer 3

In the short-term, a savings account with an online bank can net you ~1% interest, while many banks/credit unions with local branches are 0.05%. Most of the online savings accounts allow 6 withdrawals per month (they'll let you do more, but charge a fee), if you pair it with a checking account, you can transfer your expected monthly need in one or two planned transfers to your checking account.

Any other options that may result in a higher yield will either tie up your money for a set length of time, or expose you to risk of losing money. I wouldn't recommend gambling on short-term stock gains if you need the money during the off-season.