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High yield savings accounts

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Valued Contributor

Re: High yield savings accounts


@Green456 wrote:


There are places where two bedrooms cane be easily $3,000 a month. And I'm not talking about Manhattan, Los Angeles, San Francisco where rents can be easily in $5,000 a month range. $50,000 may not even last 6 months. 

 


Well aware. We live in a $1,500/square foot zip code that's none of those cities and someone renting here will get about 700 square feet for $3,000/month. Even here, $50,000 is more than enough for a any rainy day (and to repeat what I also said, I'm assuming this is NOT an emergency fund - rainy day != emergency). However, even if it is, $50,000 will last more than 6 months even in San Francisco unless you don't do any adjustments to an already out-of-control lifestyle when the regular income stops.

Message 11 of 27
Established Member

Re: High yield savings accounts

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average

Message 12 of 27
Frequent Contributor

Re: High yield savings accounts


@fishers_dad wrote:

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average


I don't. Rainy day = Emergency fund. This is for all emergencies: car needs new engine, large medical bill, loose my job, disability (disability insurance kicks in after 6 months).

Message 13 of 27
Valued Contributor

Re: High yield savings accounts


@fishers_dad wrote:

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average


I define them as follows:

 

- Emergency: funds to cover living expenses in the event of a loss of income and/or for a necessary emergency situation such as critical illness or injury. I keep about 6 months worth of living expenses in this fund.

 

- Rainy day: funds for things that are not regularly occuring but are likely to exceed my monthly discretionary reserves. Things like large vacation expenses, home renovations, or a car would come out of this account. I don't really have any hard and fast rules about amount, but this one has a similar balance to emergency savings.

 

Both funds require the cash within them to be available within a few days notice, so they're not suitable to being parked in long-term investment vehicles. All additional cash beyond these two funds get invested into individual brokerage accounts, where they can grow in value and/or generate passive income via dividends. More importantly, there's no urgency to ever withdraw funds from these accounts. They're intended for retirement income or a home purchase.

Message 14 of 27
Valued Contributor

Re: High yield savings accounts


@Bella007 wrote:
If you do go the CD route, maybe do a ladder so you have funds available every 12 months, and the longer terms will earn higher interest. Eventually all will be long term with one maturing every year. But with that much money, stocks sound like a good idea at least for part of it.

 

I've thought about this a few times, though I'm just not fond of locking up large chunks of Money for a long periods of time. While twelve months isn't really that long, as time seems to fly by these days. And once you're past the initial 12, it's only 6 month intervals.

 

I prefer having relatively immediate access to my Money, if I might happen to need it. I also realize that each year I wait, is lost interest. lol

 

On a side not, I just received an email from Amex today, stating that tomorrow my HYSA will only be earning 1.9%. Down from the 2.10% when I opened it. More DP's for a trend in Banks lowering their rates? Considering Discover lowered theirs recently, as well as a couple others I heard. 

Message 15 of 27
Valued Contributor

Re: High yield savings accounts


@Janus wrote:

@Bella007 wrote:
If you do go the CD route, maybe do a ladder so you have funds available every 12 months, and the longer terms will earn higher interest. Eventually all will be long term with one maturing every year. But with that much money, stocks sound like a good idea at least for part of it.

 

I've thought about this a few times, though I'm just not fond of locking up large chunks of Money for a long periods of time. While twelve months isn't really that long, as time seems to fly by these days. And once you're past the initial 12, it's only 6 month intervals.

 

I prefer having relatively immediate access to my Money, if I might happen to need it. I also realize that each year I wait, is lost interest. lol

 

On a side not, I just received an email from Amex today, stating that tomorrow my HYSA will only be earning 1.9%. Down from the 2.10% when I opened it. More DP's for a trend in Banks lowering their rates? Considering Discover lowered theirs recently, as well as a couple others I heard. 


Just as an aside, I decided to go with the CD ladder a while back, and I've set it up for quarterly which helps with my risk tolerance and my desire to not pay too much in fees in case of an emergency.


But yes, as you've noticed it does take a bit of time to get cycling, and I do have to keep things organized since it does mean a larger # of CDs to track.  The upside is that if I want to increase a CD, I don't have to wait as long.  Luckily I haven't had to take any out (yet.)   




Garden goal: keep on keepin' on until 2020.
Faithful practitioner of AZE4or5or6
Message 16 of 27
New Contributor

Re: High yield savings accounts


@fishers_dad wrote:

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average


OP I understand wanting to stay liquid but that is really a lot of money to just be sitting in a savings account if you have no other investments.  You can take a little over half that for example and buy a 1,000 shares of Stag Industrial which is a REIT and that would net you $119 a month for example.  That would cover small bills like cellphone and netflix which honestly is something you should probably start focusing on instead of just stockpiling cash endlessly.  With that much capital depending on where you live you can get 4plex (with leverage using your money as a downpayment) and essentially live mortgage free having your tenants pay your mortgage for you.  If you already own a home you could throw some of that money at your mortgage and knock years off of it. 
 
Now if you already have a bunch of investments and just want cash to be liquid than maybe instead of looking at savings account you could consider putting your money into 4 week tbills instead.  Essentially if you stagger depositing the money out you can pull out 1/4 of your money you put in each week.  Just another idea to throw out there.  Again though if you don't have any investments I would considering putting your money to work for you instead of just sitting in a savings account or putting it in treasuries.      
Message 17 of 27
Regular Contributor

Re: High yield savings accounts


@iced wrote:

@fishers_dad wrote:

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average


I define them as follows:

 

- Emergency: funds to cover living expenses in the event of a loss of income and/or for a necessary emergency situation such as critical illness or injury. I keep about 6 months worth of living expenses in this fund.

 

- Rainy day: funds for things that are not regularly occuring but are likely to exceed my monthly discretionary reserves. Things like large vacation expenses, home renovations, or a car would come out of this account. I don't really have any hard and fast rules about amount, but this one has a similar balance to emergency savings.

 

Both funds require the cash within them to be available within a few days notice, so they're not suitable to being parked in long-term investment vehicles. All additional cash beyond these two funds get invested into individual brokerage accounts, where they can grow in value and/or generate passive income via dividends. More importantly, there's no urgency to ever withdraw funds from these accounts. They're intended for retirement income or a home purchase.


Question: if you have credit cards with a high spending limit, why might you need liquid cash available with a few days' notice?

Message 18 of 27
Frequent Contributor

Re: High yield savings accounts


@Batsy wrote:

@iced wrote:

@fishers_dad wrote:

So i'm not sure how you are distinguishing between 'rainy day' and 'emergency'.   My primary purpose for that money is to be liquid should i lose my job.  i'm afraid it could take me as long as a year to become employed again (worst case) and want the piece of mind knowing i can pay my bills during that timeframe.  The dollars are roughly half what i earn in a year on average


I define them as follows:

 

- Emergency: funds to cover living expenses in the event of a loss of income and/or for a necessary emergency situation such as critical illness or injury. I keep about 6 months worth of living expenses in this fund.

 

- Rainy day: funds for things that are not regularly occuring but are likely to exceed my monthly discretionary reserves. Things like large vacation expenses, home renovations, or a car would come out of this account. I don't really have any hard and fast rules about amount, but this one has a similar balance to emergency savings.

 

Both funds require the cash within them to be available within a few days notice, so they're not suitable to being parked in long-term investment vehicles. All additional cash beyond these two funds get invested into individual brokerage accounts, where they can grow in value and/or generate passive income via dividends. More importantly, there's no urgency to ever withdraw funds from these accounts. They're intended for retirement income or a home purchase.


Question: if you have credit cards with a high spending limit, why might you need liquid cash available with a few days' notice?


How else are you keeping your cash?

1. Stocks? What happens when recession or depression hits and you loose 50% of your investment value? Bonds are safer so that maybe a good alternative.

2. CDs? What happens when a bank refuses to break your CD?

 

What happens when you need to travel outside of the country? A lot of times banks can block your credit card or even debit card. My wife was stuck in Paris with frozen Bank of America accounts and she was unable to call them because they were closed! 

 

Cash is King and during emergencies, it provides peace of mind and when travelling, US dollar can be easilly exchanged almost everywhere.

Message 19 of 27
Valued Contributor

Re: High yield savings accounts


@Green456 wrote:

@Batsy wrote:


Question: if you have credit cards with a high spending limit, why might you need liquid cash available with a few days' notice?


How else are you keeping your cash?

1. Stocks? What happens when recession or depression hits and you loose 50% of your investment value? Bonds are safer so that maybe a good alternative.

2. CDs? What happens when a bank refuses to break your CD?

 

What happens when you need to travel outside of the country? A lot of times banks can block your credit card or even debit card. My wife was stuck in Paris with frozen Bank of America accounts and she was unable to call them because they were closed! 

 

Cash is King and during emergencies, it provides peace of mind and when travelling, US dollar can be easilly exchanged almost everywhere.


This sort of touches on how I would answer.

 

First, think of a "few days" as short-term. Unless there's some major expense where CC just isn't taken (and I cannot think of one), my albeit not large limits can cover the spread. However, I won't carry a balance and so would need to be able to pay that debt back from cash reserves by the next statement due date. A few days notice here means I need to be able to liquidate that cash reserve to a form I can pay with within a few days, and I cannot always do that with invested funds. Several reasons for this:

 

1. If we're in a recession/depression, the worst thing I can do is sell my stocks. The best way to mitigate risk in stocks is to be able to hold them long enough to weather a recession. In no point in history has the stock market not recovered from a recession or depression, so it's a matter of time. If I didn't have cash reserves, though, I may be forced to sell which could result in a loss of a lot more money than what I really needed for the expense. Fun side fact on this: a lot of my stock holdings are the type I may in fact never sell, using them for passive income via dividends or to pass on to heirs. My ideal retirement goal is to be able to live off interest/dividends, meaning I'd never have to sell any stocks.

 

2. There's few/no penalties to liquidate funds in savings, or matured CDs. Liquidating stocks, in addition to the reasons already stated, also will incur a tax hit that I have to account for. Selling stock is something that should be done deliberately and with forethought/planning, not on a whim to cover a $15,000 hospital bill. By comparison the interest earned from savings/CDs, while taxed higher, is also a much smaller amount by comparison. $100,000 in cash will earn around $2,100 in interest at present rates, of which somewhere around $500-600 is taxable. I can liquidate that full $100,000 and still only pay that $500-600 in tax. If I liquidate $100,000 worth of stock, I'm looking at as much as tens of thousands in tax consequence for it, depending on cost basis and short/long-term status.

 

I'm less worried about the short, short term or international situations and more about using cash as a stability buffer to maximize my money's growth.

Message 20 of 27
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