Savings nest egg -- what to do with it?

rivkadrMarch 27, 2009

My husband and I have been working hard over the past several months to set aside around $20k, in case one of us should lose our jobs...this "nest egg" would be enough to get one or both of us through several months of unemployment.

The question is, what do we do with it? Our regular savings account at Wells Fargo is yielding a rather pitiful return of around 0.25. I know there's better options out there like ING -- but is that our best bet? Is there something else we should be looking at? I don't want the money wrapped up in anything long term, in case one of us does lose our job -- the money needs to be accessible. But it would be nice to have that money "working" for us in the interim and making a little bit of a return, if possible.

Any input or guidance is greatly appreciated.

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CD (Certificates of Deposit) are available at banks and pay about 2.5 to 3 %. You can get them in various amounts and various lengths. I like to "ladder" them. That is I have one come due for renewal every month or two. You could take one month's amount and put it in for 6 months. At the same time put in one month's amount in a second CD for 12 months. Next month do the same in new CD's. You will still have a cash reserve until you have deposited your money in CD's, and by then you should be having one come up for renewal every month.

BTW, you can remove money from a CD at anytime, but you will lose interest.(and possibly a small penalty if fairly newly opened)

    Bookmark   March 27, 2009 at 10:16AM
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Consider Money Market accounts too. FDIC insured now. You could put some cash in CDs and some 'ready money' in a MM account.

I have to smile at your post because a lot of us are wondering the same thing -- especially those of us who are retired -- no salaries and no high-interest 'safe' investments available. I have some CD's at 4.6% APY; what to do with them when they mature in September?

    Bookmark   March 27, 2009 at 11:14AM
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"Consider Money Market accounts too. FDIC insured now."

Not true.

The emergency money-market insurance applies only to money that was already in the account as of a particular date last year -- I think it was September 19, but I'm not sure.

    Bookmark   March 27, 2009 at 12:14PM
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and the money market insurance goes away later this year as well.

    Bookmark   March 27, 2009 at 7:49PM
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There aren't a lot of good alternatives right now. We set up an ING account a couple of years ago for the same purpose, and the interest rate has been dropping steadily. It is down to 1.5%. 12-month CDs pay the same. Our credit union MM is only paying 1%.

ING is easy to do, and probably the best you are going to get these days in terms of a savings account.

    Bookmark   March 27, 2009 at 10:23PM
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Why are interest rates so low? When will they go up? I'm in the same boat with what is left of our IRA.

    Bookmark   March 27, 2009 at 11:10PM
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Interest rates have been lowered drastically all over to entice people to continue buying things, even though credit is hard to come by (it's the economy, of course).

    Bookmark   March 28, 2009 at 4:55AM
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Greetings, rivkadr,

I expect them to be going up soon - driven by the higher interest rates that the gov't. will have to pay in order to entice the bankers of the world to lend them more money - U.S. folks can't do it: they're too deep in debt, themselves.

Did you notice that the U.S. gov't.'s main banker, the gov't. of China, worried aloud to Hillary on her visit there the other day as to whether the U.S. money management system was in good enough order?

Considering their huge debt, and the massive deficits, year after year, which were bad enough dealing with the bottomless pit called Iraq (plus Afghanistan), before the elephantine bailouts of the parts of your financial industry that are, " ... too big to fail" (rather than the regional banks, who were much more prudent, and deserved the gov't. support a heck of a lot more ... but the gov't. bailout guys are the former bosses of those big financials).

Also ... they're printing gobs of new money.

I remember, just after Dad gave me my first bike at age 9, while riding it down the gravel road beside our farm, thinking what a great thing that it would be if all of that gravel turned to gold ...

... but it didn't take me long to realize that, were it to become gold to me, it would have become so for everyone else, as well ...

... and soon it would take more than a pocketful to buy a loaf of bread.

Given those circumstances, if you had control of massive amounts of assets in foreign parts and the U.S. gov't. came, cap in hand, with the rounded head part on the bottom and the hole on top, awaiting the piling in of new money ...

... what answer would you give?

Can you imagine the screaming, if interest rates in the U.S. were to, say double, in the next year or so?

Have you noted the howling that people have done, here, when the interest rates on their credit card increased substantially?

I began selling mutual funds in 1984 (which continued for just a year - then I became personal financial advisor, selling no financial products: no conflict of interest).

At that time, some folks, mainly seniors, happily told me how they'd made 19% on Canada Savings Bonds, a couple of years earlier.

When I asked them how they liked making about $2,000. - 3,000. on $100,000. or so invested, they laughed at me.

Yes, they had a nice looking amount to show in their bank book ... but interest income is taxed at top rate, and if they were in 25% tax rate, that'd take their pre-tax $19,000. down to about $14,500. of after-tax income.

When the number of dollars that you have invested is guaranteed by the bank not to shrink, there's another guarantee that they never mention: the number of dollars won't grow, either, apart from the rent on the money. However, each of those dollars will buy less next year than this year, every year since about 1937.

Did they know what the rate of inflation was, in that year? Few did: it was about 12% ... so they needed to add $12,000. or so of that interest earning to the principal, in order to maintain purchasing power.

Income tax erodes most of your current income ... and inflation has an deleterious effect upon your assets.

Which is why I say that I don't like earning interest ... plus, dividends on Canadian stocks are taxed at a much lower rate.

Bank books don't tell the whole story!

Good wishes for using your assets wisely, rivkadr.

ole joyful

    Bookmark   March 28, 2009 at 5:17AM
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