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I have 15K in a USA Midwest bank called TCF. I am a college student, and after working at some internships I saved up some cash.

I currently have the money in a savings account called "TCF® Premier Savings" I have no clue how competitive this account is. The choice was made due to its proximity to the university that I go to school/work at.

I don't plan on touching the money in at-least 5 years. I was wondering whats the best place to put this money?

  • How recently was the money earned? It matters for considering if a portion could be put into something like a Roth IRA since that requires you have earned (or will be earning) income this year at least equal to what you would be contributing to the ira. – Chuck van der Linden Jul 16 '11 at 7:50
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I disagree with the IRA suggestion. Why IRA? You're a student, so probably won't get much tax benefits, so why locking the money for 40 years?

You can do the same investments through any broker account as in IRA, but be able to cash out in need. 5 years is long enough term to put in a mutual fund or ETF and expect reasonable (>1.25%) gains.

You can use the online "analyst" tools that brokers like ETrade or Sharebuilder provide to decide on how to spread your portfolio, 15K is enough for diversifying over several areas.

If you want to keep it as cash - check the on-line savings accounts (like Capitol One, for example, or Ally, ING Direct that will merge with Capitol One and others) for better rates, brick and mortar banks can not possible compete with what you can get online.

  • Ira (for a portion perhaps) because now is when he gets the greatest impact from compounding. One of the biggest mistakes people make in saving for retirement is waiting, and then discovering they have to invest pretty large amounts in order to 'catch up' to where they would be if they had invested smaller amounts much earlier on. Since he's probably not paying a lot in taxes now, a Roth style would likely be best since those are funded with after tax money anyway (you get the tax advantages while it grows and when withdrawing) – Chuck van der Linden Jul 16 '11 at 7:46
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Fifteen thousand dollars is not a whole lot of cash. It should probably be kept liquid. To that end, savings accounts and certificates of deposit (CDs) are typically used. (There are also money market funds, but I am not sure that makes sense once trading costs are figured into the equation.)

I would set some of that money aside, for an emergency fund. (Start with at least 6 months of realistic living expenses and also consider a fund for unforeseen emergencies.) I would consider using 2-3 thousand to setup a retirement account. The rest, I would place into CD ladders, so that it is somewhat accessible.

  • +1 for using a ladder approach. It's hard for rates to go much lower than they are now, with a laddered approach you won't get quite as much return as you would putting it all into a 5 year CD, but if rates go up you can reinvest as the 'rungs' mature for a longer duration and higher rate. – Chuck van der Linden Jul 16 '11 at 7:43
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You can put them in a 5 years CD and getting a maximum of %2.5 APY if you're lucky. If you put 15k now, in 5 years you'll have $1.971. If it sounds good then take a look at the current inflation rate (i'm in usa)...

If you want to think about retirement then you should open a Roth IRA. But you won't be able to touch the money without penalties (10% of earnings) before you get 59 1/2 years old.

Another option would be to open a regular investment account with an online discounted broker. Which one? Well, this should be a totally separate question...

If you decide to invest (Roth IRA or regular account) and you're young and inexperienced then go for a balanced mutual fund. Still do a lot of research to determine your portfolio allocation or which fund is best suited for you. Betterment (i never used it) is a no brainer investment broker.

Please don't leave them in a generic checking or low interest savings account because you'll save nothing (see inflation again)...

  • +1 If the money has no plans. Getting a head start on retirement will help. But be double sure you don't want this money more liquid. – MrChrister Jul 15 '11 at 20:31
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First thing to do right now, is to see if there's somewhere equally liquid, equally risk free you can park your cash for higher rate of return. You can do this now, and decide how much to move into less liquid investments on your own pace.

When I was in grad school, I opened a Roth IRA. These are fantastic things for young people who want to keep their options open. You can withdraw the contributions without penalty any time. The earnings are tax free on retirement, or for qualified withdrawls after five years. Down payments on a first home qualify for example. As do medical expenses. Or you can leave it for retirement, and you'll not pay any taxes on it. So Roth is pretty flexible, but what might that investment look like? It in depends on your time horizon; five years is pretty short so you probably don't want to be too stock market weighted. Just recognize that safe short term investments are very poorly rewarded right now.

However, you can only contribute earnings in the year they are made, up to a 5000 annual maximum. And the deadline for 2010 is gone. So you'll have to move this into an IRA over a number of years, and have the earnings to back it.

So in the meanwhile, the obvious advice to pay down your credit card bills & save for emergencies applies. It's also worth looking at health and dental insurance, as college students are among the least likely to have decent insurance. Also keep a good chunk on hand in liquid accounts like savings or checking for emergencies and general poor planning. You don't want to pay bank fees like I once did because I mis-timed a money transfer. It's also great for negotiating when you can pay in cash up front; my car insurance for example, will charge you more for monthly payments than for every six months. Or putting a huge chunk down on a car will pretty much guarantee the best available dealer financing.

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A good question -- there are many good tactical points in other answers but I wanted to emphasize two strategic points to think about in your "5-year plan", both of which involve around diversification:

  • evaluate your potential expense allocation
  • evaluate your potential income

Expense allocation:

You have several potential expenses. Actually, expenses isn't the right word, it's more like "applications". Think of the money you have as a resource that you can "pour" (because money has liquidity!) into multiple "buckets" depending on time horizon and risk tolerance.

  1. An ultra-short-term cushion for extreme emergencies -- e.g. things go really wrong -- this should be something you can access at a moment's notice from a bank account. For example, your car has been towed and they need cash.

  2. A short-term cushion for emergencies -- something bad happens and you need the money in a few days or weeks. (A CD ladder is good for this -- it pays better interest and you can get the money out quick with a minimal penalty.)

  3. A long-term savings cushion -- you might want to make a down payment on a house or a car, but you know it's some years off. For this, an investment account is good; there are quite a few index funds out there which have very low expenses and will get you a better return than CDs / savings account, with some risk tolerance.

  4. Retirement savings -- $1 now can be worth a huge amount of money to you in 40 years if you invest it wisely. Here's where the IRA (or 401K if you get a job) comes in.

You need to put these in this order of priority. Put enough money in your short-term cushions to be 99% confident you have enough. Then with the remainder, put most of it in an investment account but some of it in a retirement account. The thing to realize is that you need to make the retirement account off-limits, so you don't want to put too much money there, but the earlier you can get started in a retirement account, the better. I'm 38, and I started both an investment and a retirement account at age 24. They're now to the point where I save more income, on average, from the returns in my investments, than I can save from my salary. But I wish I had started a few years earlier.

Income:

You need to come up with some idea of what your range of net income (after living expenses) is likely to be over the next five years, so that you can make decisions about your savings allocation. Are you in good health or bad? Are you single or do you have a family? Are you working towards law school or medical school, and need to borrow money? Are you planning on getting a job with a dependable salary, or do you plan on being self-employed, where there is more uncertainty in your income?

These are all factors that will help you decide how important short-term and long term savings are to your 5-year plan.


In short, there is no one place you should put your money. But be smart about it and you'll give yourself a good head start in your personal finances. Good luck!

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