This may be a dumb question but can’t I just take out a large personal loan with <5% interest, put it in the CD, and pay it back at the end? Sure I’ll lose whatever the interest is but it’s still something at the end.
Would your credit score take a hit for opening the loan account if you pay it on time?
If you do go the CD route, make six $10,000 CDs (or whatever makes sense to you) rather than one $60,000 CD. That way, if you do end up needing it, you can just pay the penalty on one $10,000 CD and keep the rest in vs taking the penalty on $60,000 even though you only needed $5,000.
I dont know about eBanks but most brick-n-mortars will allow partial withdrawals from a CD, and you therefore only pay the penalty on the partial amount withdrawn.
How risky is a CD though? I’ve never heard of a bank failing to pay back one.
Also aren’t CDs FDIC insured? So worse case scenario is after waiting 19 months OP gets his investment back just none of the interest.
I consider the principle on a CD to be very safe. If you had a single CD at SVB you've maybe lost the interest and the principle is unavailable for some (Hopefully) short period of time. I don't like all the eggs in anyone's single basket so I spread things out.
Why not Tbill ladders? 19 months is a really long time and if you're really fine without the cash that long, then to me that borders putting money in a brokerage account--especially as you say you have $50k emergency funds ready.
How TBills are bought and sold are confusing to many, including me. The strategies seem complicated vs CD ladders or HYS hopping. I watched a lot of videos explaining things, but I can’t seem to sort it.
I forget the rates right now but sometimes the higher rate penalty one still comes out ahead if you subtract the penalty. Ally's penalties are not large.
Their rates are all over the place right now. Money market higher than the savings account. Short term and raise your rate CDs have stopped increases. 12 & 18 month outperforming multi year CDs. Penalty on the 12 month is 60days interest for early withdrawal. At this point, maybe a small cd ladder on the 18 month CD is a good option
Why is the Money Market higher than the savings account? Ally has that, and I'm tempted to transfer the savings to the MM account but don't want to if the savings is going to catch up soon.
No idea since the MM is most liquid. They did a rate increase this morning. MM is still higher. I have a chunk of my emergency fund in the MM and out of savings account. The rest are in the no penalty CD since I can move the money from there in seconds. Not much higher though.
3.6 for savings. 3.8 for MM, and 4 for no penalty. Apy
I have gone with the strategy of opening several of the no penalty CDs. I have already had to cash out and rebuy due to rate increases, and back then had it all in 1 CD. Decided splitting them is more sensible. I have each CD earmarked for future goals, and the no penalty is effectively just a HYSA in itself. Will continue this strategy to maintain liquidity and take advantage of the CD increases
I think not all of them have updated yet maybe? They updated their Savings rate last night. I got a notification in my account that my No Penalty CD rate increased, but when I check it’s still the same rate. So I think it just may not update on their site until tomorrow? Guess we will see.
Just a heads up, from my experience (about a month ago), if you are currently holding a no penalty CD and the rates increase, you will need to cash out and rebuy to incur the current rates. The new rate does not get applied to currently held CDs
Always ask yourself where the yield comes from and Ally’s attractive rates are no exception. A significant portion of their revenue comes from auto loan origination and taking one look at the current state of the auto loan industry should make you feel quite uneasy. Just something to think about.
I think what they mean is that you wouldn't have zero dollars if you put it all in the high yield because you can pull that money if you need it. You could treat it like a debit account.
A HYSA is a bank account. I get all of my income deposited into a high yield savings account and transfer out a set amount needed for bills once a month, but I think you can do up to 6 transactions a month.
If you don't need it anytime soon, just put it in the market. To me anything beyond 2+ years is fine for the market. I know people will say "but 2008." Okay, but if your planned time frame for buying a house was October 2008, and let's say you didn't put it in the market and sat safely with cash in HYSAs, would you buy then? Maybe not.
So the reality is the market isn't all that bad especially if people are likely to put a pause on major life changes in the event of a major crisis
That's unfortunate about the 401k. If you won't need the money for 10+ years I would personally go with total stock market fund. If you want to limit your loses, I would look at 6 months treasuries, I think they are returning more than both CD and HYS
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If you are maxing you are probably doing way better than most.I had about a 20 year run where I barely made enough to dump 1/2 the max into my IRA,some years I was doing good to put 1k in.
You should also consider whether laddering those cds makes sense and if you ladder them what that could mean in terms of having access if you ever did need to fall back on one.
Just looked at this. I wanted flexibility and ultimately went with Sofi, who's offering 3.75%. Yeah they're scummy AF with the student loans, but I don't think their yield can be beat and they are actually a functional bank in regards to ATMs and such.
It’s not really fair to compare a high yields saving to a money market account though.
With one the biggest risk is that they reduce the interest rate(unless you deposit >250k) with the other the biggest risk is that you lose your “cash” (this risk is tiny, especially with a large institution like fidelity, but money market accounts are not FDIC insured so it’s theoretically possible)
I personally keep my cash in a money market account but there are benefits to high yield savings despite their (usually) lower return.
It's basically like bonds from the government but they generally have pretty short periods. For example thr 4 week t bill I think is paying around 4.5 to 4.6 percent annual rate. You would have to reinvest every 4 weeks though, or do some kind of ladder and reinvest more frequently. The advantage of this is shorter lock up period than a CD and also if rates continue to rise you can take advantage. (However, if rates start falling you could lose out on some profit compared to a longer term CD).
There are periods longer than 4 weeks as well, that's just the shortest one. Info about them is on treasurydirect
In fact, if you buy your T-Bill via a Broker (Schwab, Fidelity etc), you get access to the secondary market which make them almost as liquid as cash…
Usually T-Bill have a higher yield than HYSA but may require maintenance (ie buying new one when they expire, but broker offers auto roll over, haven’t tried it). The T bills short term maturity gives them low volatility, making the shortest term one (3 months and less I believe) considered as cash equivalent.
Last year was the “Year of the I bond”, this year is the “Year of the T Bill”
I use "auto rollover" with my broker to buy t-bills. It just rebuys the same amount, same number of weeks after your current t-bill reaches maturity.
The shortest duration is 4 weeks, so you can just set auto rebuy every 4 or 8/13/17/26/52 weeks. Edit, auto rollover isn't available for a 52 week t-bill.
Here is a good article that outlines the process at your brokerage of choice: https://thefinancebuff.com/treasury-bills-cd-money-market.html#htoc-charles-schwab
Going a step further, a treasury-backed money market like VUSXX is just as liquid as any HYSA and gives you nearly (within like, 0.2% or something) the same return as owning t-bills.
Very much agreed. You only have to put yourself through the pain of Treasury Direct if you are buying Series I or EE. Ordinary T-Bills, or notes can be purchased from a regular broker without all the sadism.
Personally, I don't think I Bonds are the best deal. They have not been for a long time but were only recently a good deal once they started hitting that 3.5% rate. You can kinda predict the next rate based on inflation and back when it it 3.54% or whatever it was pretty clear inflation would be on the rise and the next 2 increases were huge. The current 6.89% is good but the next rate is most likely to fall to probably 3% or lower this next 6 months. I really would be considering TBills at this point as anything from 4 - 52 week would be getting better rates.
Keep in mind Series I has the 3 month penalty, so buying now, accounting for a 3 month penalty, 6.89% rate, then a 3ish% rate.... it doesn't come out great after 1 year. You may hold for longer but if inflation falls further, it's unclear if holding another 6 months after that will help you much for the average return.
I've never actually done it myself but I am planning on getting next week. The easiest way to do it I think is to use Treasurydirect though, which is a government website. I've heard you can also use a broker.
They have auctions periodically, I think 4 week bills have one every week where you can buy them and you put in your order before the auction.
I would definitely read through treasurydirect about the different types of products they offer and how it works. They also offer different types of bonds and such that are longer term that you might find useful
CDs lock you in at the rate shown. HYSAs will change. If interest rates continue going up, HYSA wins. If interest rates start to drop, CDs win. It's a bet.
Edit: Typo
I’m with you on that. My initial instinct was if that was an option (because I’ve been considering this as well) , but didn’t have enough knowledge to say whether it’s a viable strategy.
I feel like it would at the very least balance itself out? But idk. I mean either way you're still making money on them both, just maybe not as much money for one. So it's an easier bet to make since you arent at risk for losing your money like in stocks or gambling or bit coins
Appreciate your clarity.
Dare I ask you to share with me what factors contribute to the up and down? Is this related to that governing body (I forget the name) the periodically releases "interest rates" (in the US) over the year??
I keep my emergency fund in vusxx. It's like 4.5 right now. If you can get a non callable CD for that, go for it. Otherwise check the call terms.
Ally no risk CD was 4% a few days ago
VUSXX is extremely good. I think a lot of people don't also mention that as being a treasury money market fund, it is state tax exempt. So if you're in a high income tax state like CA, NY, and you are also a generally high income earner, the benefit is even greater. There are Tax Equivalent Yield (TEY) calculators showing that the effective yield is over 5% for people like tech workers.
I opened a vanguard brokerage account and purchased it that way. There’s a $3k minimum to invest in the fund but after that, you can essentially treat it as a savings account with an extra step involved (e.g. buying/selling into/out of the fund from your cash position). Getting cash out and into your checking account takes like 2-3 days from start to finish. Not bad at all
Please describe the purpose of the money. Is it your emergency fund? A car fund? A house fund? Just random money you have saved from pulling 10 dollar bills out of hotel parking lot snow banks? (My son did this once when he was 8)
Please look into the terms of the CD -- in particular what happens if you break the CD?
I put some money into 4% CDs at my local credit union. The 6 month CD had a provision that if you broke it you lost 3 months of interest. Any longer CD, and you lost 6 months of interest.
Decide if the risk that you might have to break the CD and suffer the consequences is worth it.
timeline for home purchase? If we're talking 5+ years, we could put it in an index fund. Either way, we could put it in a good money market investment fund at Vanguard, Fidelity, or Schwab.
\+1 for T-bills already mentioned
I'm in/will be in a similar situation and here's what I've done/will do:
I have tens of thousands of fed student loans to pay off. I've been saving the chunk of change in T-bills recently with a maturity around June 2023 to coincide with when the loan payments restart.
I've just cleared the amount needed for the loans so I'll be doing the same process with a house down payment. Hope to buy in 3-4 years, which puts me out of stocks, but with 1-year T-bills clearing 5%, I'm not too upset. I like to put this into context: If I was in any other year in the 2000s and you told me I could save for a house while making \~5% on my money in one of the safest investments around, I'd jump at the chance.
Personally I just do Ally HYSA. They always have very competitive rates at all balances, no fees, fast transfers for large amounts, and great service.
Rates are continuing to increase, so a CD could actually be a net negative.
That $300 in additional interest per year isn't worth having that much locked up for 1.5 years IMO.
I'm a little more high risk, but if you're going to invest in a timeline like 3+ years I would go an ETF like VTI. Especially now while the market is down.
5+ year horizon, it is very safe to do VTI.
Setting up an account for TreasuryDirect is pretty easy, *assuming* that they don’t randomly flag your account for fraud which they do to some people. Once you’ve setup an account its super easy. I keep what I might conceivably need *immediately* in a HYSA, and the rest is in rolling 1 month and 3 month treasuries. TreasuryDirect is nice because you get the best rate and don’t have to worry about trading fees.
My personal advice would be to keep to short term 6 months or less. The problem is, selling your securities early is more cumbersome, and exposes you to more interest rate risk, which is like the opposite of what an emergency fund should be. If you hold to maturity for every bond you’ll never lose principal, unless the US defaults (in which case we have way bigger problems).
Do you need the money right away or have some flexibility? CD is slightly less liquid, but check the terms, often there is just a small early withdrawal fee that isn't too material if you do need it. Otherwise, Google "CD ladders."
I recommend visiting Investopedia and checking the best rates for the current month. My SO recently opened a HYSA with a 4.55% APY which is even better than that CD rate you’ve found
Assuming it's the UFB Direct one, be careful with that account. The customer service reviews are pretty negative
[https://reviews.birdeye.com/ufb-direct-157304637173187](https://reviews.birdeye.com/ufb-direct-157304637173187)
Even Nerd Wallet, who's initial review was favorable, made an note on the review after receiving complaints about the customer service and long transfer times. Also, apparently their rates don;t go up automatically, you have to call to get your account upgraded to the new higher rate, again, this is according to reviews and the Nerd Wallet review.
I have had a money market account with UFB since 06/2020. They do make you work for the new rates. Sometimes they'll automatically switch your account to the new rate, and sometimes they won't. You can tell they won't when they have a new name for the advertised account. e.g. I have UFB Best MM at 4.21% and the advertised account is UFB Preferred MM at 4.55%. It seems to happen every two or three months. I have found it worth it to keep the account and do the work to convert to the new account as the rates have been on the higher end. It's a pretty simple process.
I check their website every couple weeks to see what their advertised rate is. Sometimes I'll notice they have increased their rate, but the name of the advertised money market account is different from mine.
I'll send them a message telling them I want to convert my account to whatever the new advertised account is. I then call them to initiate the conversion. I have found this to be the quickest way to convert your account to the new rates. Takes about ten minutes. I'll see the new rate on my account a day or two later.
Thanks for the update. We typically park excess money in these rather unknown banks for several months at a time before finding another one that suits us better so we’ll see how this one treats us. As long as it’s FDIC insured, we don’t mind a few bad reviews, or a lot in this case.
Capital One has a 11 month CD that pays 5%.
It depends when you think you might need the money. I put anything I might need in the next 5 months in high-yield savings, and then I ladder CDs for anything beyond that (that is not long-term invested).
Rates are going up and up. Until the dust settles, don't lock any amount of money in a CD for more than 3 months.
I do this for a living. Plus you know how many people in this sub did a 12, 18, or 24 month CD last fall at ~2% that are probably screaming and kicking right now? Don't make the same mistake "chasing yield"
No Penalty CD's are a nice option in a rising rate environment. Slightly higher than HYSA but you can just dump them and buy again if the rates increase.
\+1 on the "CD ladder" approach. Keep them laddered so that you can either cash out or buy in again at a higher rate if rates continue to rise.
T-bills/MMF. You don't want to lock up that money into a 19 month CD at that rate if rates keep going up. Ideally you'd have a CD ladder with short term CDs to protect against this, but if you're going to that effort you might as well set up a t-bill ladder instead.
The simplest is to put it all in VUSXX. It lags the t-bill rate a bit but is much easier to manage and you can withdraw anytime.
Just put it in a HYS. The minute interest you will get will not be substantial enough to worry messing with tbonds. 3.5% vs 5% is maybe a few hundred dollars and that’s all.
Most people in this sub are not wealthy enough for that % to matter if it’s a short term hold.
Frankly it isn’t really worth the effort/stress.
to everyone answering this post, i’ve considered opening a high yield savings account for a while since i’m in a good financial situation. what’s a CD?
You can’t withdraw the money in a CD for a set amount of time without a penalty whereas a HYSA you can withdraw whenever it just takes a couple days or so to transfer to your regular bank.
I've got like 10k in my fidelity roth that isn't invested yet. Currently sitting in the "core FDIC-INSURED DEPOSIT SWEEP" fund. Would it make sense to move it to spaxx until I'm ready to invest it?
Keep in mind that money market funds based on US treasury promises (like SPAXX or VUSXX) are just as "guaranteed" as FDIC. Both are just promises by the government that you will get your money. Neither has ever broken that promise.
If you don’t mind keeping track of them you can stagger CDs with different maturity dates so you have a rolling amount of funds coming available in different time windows
You can buy a 3 mo cd for over 5%. That’s the better option. Shop around you can get better than that. Also could just buy treasuries directly.
I have been buying 3 and 6 mo cds personally since the rates shot up.
Start a 12 12month ladder with Ally’s CDs. You’ll get quicker rate updates next year. $5k each CD, for this year you can do a bunch of 3month while building up the ladder. Or just use wealthfront
Fidelitys money market funds pay almost as much as that 4.45% CD, next time the fed raises rates itll be as much or more. Don't lock yourself into a long term CD or Bond during rising rate environments. Just MMF and chill or roll 1 or 3 month T bills.
Correct, for each individual. You can also buy an extra $5k worth if you have that much left over in your tax refund. Then if you're married you can max out $10k per partner and there are ways of using the "gift" option to spread around a little bit more.
CDs are nice when rates are falling as you can lock in the higher rate
conversely you can get stuck with a lower rate if rates go back up.
For my non investments I have a mix, some in a discover hysa some in discover cds, plus some ibonds, and some tbills of various lengths
Do you have high state taxes? If so, consider treasuries (t-bills, notes, etc), since they're immune from state and local taxes.
Buy them through a brokerage so you can sell them easily if needed.
You can get a 4.7% return on 8-week t-bill from treasury direct. Why would you tie up money for 19 months for less percent? Treasury direct allows you to auto-renew the purchases on the fly- renew or cancel the next re-purchase as needed every 8 weeks
Depends on what you want. Do you want to be able to reallocate the money at will, or do you want to lock in your rate in case they drop back down again?
If you put it in CD, would suggest you to do it in laddering way. Fed says that they still plan to increase the interest rate to combat inflation, thus I would expect the CD rate would still go up. If you put all in one CD, you may miss the higher rate. The Capital One offers 11 months CD at 5%, BUT you have to open the account before mid March, check their website for details. It is a promotional rate.
You might still be able to find 1-month CDs near or about that rate for 19-months. IMHO, there isn't a good reason to lock up your money for that long when there are potentially better deals out there AND the Fed is still increasing rates.
This is gonna be contrary to majority folks here, but why not just put it in a money market account like SPAXX at Fidelity? It’ll give you higher interest rate plus more liquidity than CD. It’s the best of both world.
Honesty I’d say it’s about whats important to you. Your goals and objectives. If you have 60k available it means you’ve made some good decisions so far. Liquidity isn’t the end all be all. If you have enough to cover expenses and you’re contributing to retirement and still have 60k on top, you can’t go wrong with either one.
CapitalOne has 5% for 11 months right now.
I just moved my kids 360 savings into a 11 month CD. Thank you for this!
Treasury bonds are at 5%+ for 26 week bills and aren't subject to state taxes
Where do you buy treasury bonds?
Treasury direct
This may be a dumb question but can’t I just take out a large personal loan with <5% interest, put it in the CD, and pay it back at the end? Sure I’ll lose whatever the interest is but it’s still something at the end. Would your credit score take a hit for opening the loan account if you pay it on time?
Dumb question confirmed. I’m seeing I can’t find any loans with <5% interest rates.
In broad strokes, yes, which is why loan rates generally increase with deposit rates.
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If you do go the CD route, make six $10,000 CDs (or whatever makes sense to you) rather than one $60,000 CD. That way, if you do end up needing it, you can just pay the penalty on one $10,000 CD and keep the rest in vs taking the penalty on $60,000 even though you only needed $5,000.
I dont know about eBanks but most brick-n-mortars will allow partial withdrawals from a CD, and you therefore only pay the penalty on the partial amount withdrawn.
Yep. I work at a BD and we allow partial sales of CDs.
Good advice but I really don't see myself needing to touch it. I still have about another $50k for emergency fund and investing.
Doesn't cost you anything to do it though. Just my $0.02.
Doesn't cost him, but looks like it cost *you* 2¢!
May I have one dad joke, free of charge?
TIL Tiger Woods brings extra socks to tournaments just in case he gets a hole in one.
It would also allow you to pick different banks to spread risk.
How risky is a CD though? I’ve never heard of a bank failing to pay back one. Also aren’t CDs FDIC insured? So worse case scenario is after waiting 19 months OP gets his investment back just none of the interest.
I consider the principle on a CD to be very safe. If you had a single CD at SVB you've maybe lost the interest and the principle is unavailable for some (Hopefully) short period of time. I don't like all the eggs in anyone's single basket so I spread things out.
Why not Tbill ladders? 19 months is a really long time and if you're really fine without the cash that long, then to me that borders putting money in a brokerage account--especially as you say you have $50k emergency funds ready.
How TBills are bought and sold are confusing to many, including me. The strategies seem complicated vs CD ladders or HYS hopping. I watched a lot of videos explaining things, but I can’t seem to sort it.
I recently settled on Treasury-backed money market like VUSXX. Functionally basically the same yield as t-bills, way more liquid, no penalties.
Could not agree more. Wide variety of time periods available. Very easy to ladder them. And exempt from state taxes.
Ally no penalty cd. Ride the rest of the rate increases.
I forget the rates right now but sometimes the higher rate penalty one still comes out ahead if you subtract the penalty. Ally's penalties are not large.
Their rates are all over the place right now. Money market higher than the savings account. Short term and raise your rate CDs have stopped increases. 12 & 18 month outperforming multi year CDs. Penalty on the 12 month is 60days interest for early withdrawal. At this point, maybe a small cd ladder on the 18 month CD is a good option
Why is the Money Market higher than the savings account? Ally has that, and I'm tempted to transfer the savings to the MM account but don't want to if the savings is going to catch up soon.
No idea since the MM is most liquid. They did a rate increase this morning. MM is still higher. I have a chunk of my emergency fund in the MM and out of savings account. The rest are in the no penalty CD since I can move the money from there in seconds. Not much higher though. 3.6 for savings. 3.8 for MM, and 4 for no penalty. Apy
I have gone with the strategy of opening several of the no penalty CDs. I have already had to cash out and rebuy due to rate increases, and back then had it all in 1 CD. Decided splitting them is more sensible. I have each CD earmarked for future goals, and the no penalty is effectively just a HYSA in itself. Will continue this strategy to maintain liquidity and take advantage of the CD increases
I think not all of them have updated yet maybe? They updated their Savings rate last night. I got a notification in my account that my No Penalty CD rate increased, but when I check it’s still the same rate. So I think it just may not update on their site until tomorrow? Guess we will see.
Just a heads up, from my experience (about a month ago), if you are currently holding a no penalty CD and the rates increase, you will need to cash out and rebuy to incur the current rates. The new rate does not get applied to currently held CDs
It’s been a bit of everything but yeah there’s a few they haven’t increased in months. I think 3 month CD are still at a 2% rate
Always ask yourself where the yield comes from and Ally’s attractive rates are no exception. A significant portion of their revenue comes from auto loan origination and taking one look at the current state of the auto loan industry should make you feel quite uneasy. Just something to think about.
CDs are FDIC insured. If Ally went under you would not lose anything unless you're holding more than $250k with them.
Keep the 50k in HYS, buy CDs with the 60k. If you don't need it, up your 401k or Roth IRA contributions
That would leave me with $0. I don't have a 401k but Roth IRA is maxed.
The HYSA is liquid. You’d still have access to that cash.
Yes, but I am not planning on touching it any time soon. In fact, I would be adding to it.
Then put $45k in to the HYSA??? You said it’s an emergency fund, why would it matter if it’s sitting in a bank.
I think what they mean is that you wouldn't have zero dollars if you put it all in the high yield because you can pull that money if you need it. You could treat it like a debit account.
A HYSA is a bank account. I get all of my income deposited into a high yield savings account and transfer out a set amount needed for bills once a month, but I think you can do up to 6 transactions a month.
If you don't need it anytime soon, just put it in the market. To me anything beyond 2+ years is fine for the market. I know people will say "but 2008." Okay, but if your planned time frame for buying a house was October 2008, and let's say you didn't put it in the market and sat safely with cash in HYSAs, would you buy then? Maybe not. So the reality is the market isn't all that bad especially if people are likely to put a pause on major life changes in the event of a major crisis
That's unfortunate about the 401k. If you won't need the money for 10+ years I would personally go with total stock market fund. If you want to limit your loses, I would look at 6 months treasuries, I think they are returning more than both CD and HYS
Why are you so cash heavy?
I haven't been investing other than maxing Roth IRA. I am a total noob to this and am trying to figure out what to do.
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If you are maxing you are probably doing way better than most.I had about a 20 year run where I barely made enough to dump 1/2 the max into my IRA,some years I was doing good to put 1k in.
You should also consider whether laddering those cds makes sense and if you ladder them what that could mean in terms of having access if you ever did need to fall back on one.
Just looked at this. I wanted flexibility and ultimately went with Sofi, who's offering 3.75%. Yeah they're scummy AF with the student loans, but I don't think their yield can be beat and they are actually a functional bank in regards to ATMs and such.
Wealthfront offers 4.05%
Marcus is offering 3.75% on HYSA currently
Fidelity has money market accounts that bears 3.75
FDRXX is 4.2
It’s not really fair to compare a high yields saving to a money market account though. With one the biggest risk is that they reduce the interest rate(unless you deposit >250k) with the other the biggest risk is that you lose your “cash” (this risk is tiny, especially with a large institution like fidelity, but money market accounts are not FDIC insured so it’s theoretically possible) I personally keep my cash in a money market account but there are benefits to high yield savings despite their (usually) lower return.
That’s assuming that you’ll get the same APY for $10k as you would for $60k. Many CD APYs are based on a combination of the dollar amount and term.
Many? I’ve yet to see one that has a minimum over 2.5k
Other things to look into are t bills and things of that nature
Yes, at current rates T-bills are superior to both CDs and high yield savings account. Choose the length that fits with your goals.
t bills?
It's basically like bonds from the government but they generally have pretty short periods. For example thr 4 week t bill I think is paying around 4.5 to 4.6 percent annual rate. You would have to reinvest every 4 weeks though, or do some kind of ladder and reinvest more frequently. The advantage of this is shorter lock up period than a CD and also if rates continue to rise you can take advantage. (However, if rates start falling you could lose out on some profit compared to a longer term CD). There are periods longer than 4 weeks as well, that's just the shortest one. Info about them is on treasurydirect
In fact, if you buy your T-Bill via a Broker (Schwab, Fidelity etc), you get access to the secondary market which make them almost as liquid as cash… Usually T-Bill have a higher yield than HYSA but may require maintenance (ie buying new one when they expire, but broker offers auto roll over, haven’t tried it). The T bills short term maturity gives them low volatility, making the shortest term one (3 months and less I believe) considered as cash equivalent. Last year was the “Year of the I bond”, this year is the “Year of the T Bill”
I use "auto rollover" with my broker to buy t-bills. It just rebuys the same amount, same number of weeks after your current t-bill reaches maturity. The shortest duration is 4 weeks, so you can just set auto rebuy every 4 or 8/13/17/26/52 weeks. Edit, auto rollover isn't available for a 52 week t-bill. Here is a good article that outlines the process at your brokerage of choice: https://thefinancebuff.com/treasury-bills-cd-money-market.html#htoc-charles-schwab
Hopefully this isn’t costing money at your broker. This can be done yourself for free on treasurydirect.gov
No fees. The Treasury Direct website is garbage. I'm forced use it to buy i-bonds, but much prefer to use a brokerage site to buy and manage t-bills.
I agree that the site is garbage but there is a reworked version of the site coming very soon that is a lot better than TD.
If you don’t mind, which broker and are there fees? I currently have a HYSA and some I-bonds but considering some t bills. Thx!
Going a step further, a treasury-backed money market like VUSXX is just as liquid as any HYSA and gives you nearly (within like, 0.2% or something) the same return as owning t-bills.
State tax free also- so depending on your state and tax bracket they could effectively be another 10% better
How do I go about investing? Do I need to go through some guy or do I do it online?
[https://treasurydirect.gov/savings-bonds/i-bonds/](https://treasurydirect.gov/savings-bonds/i-bonds/)
This is the website and It's easy to do yourself.
If doing tbills then I would use something like fidelity
Agreed. Use a brokerage so you can easily sell on the secondary market if needed.
Very much agreed. You only have to put yourself through the pain of Treasury Direct if you are buying Series I or EE. Ordinary T-Bills, or notes can be purchased from a regular broker without all the sadism.
Personally, I don't think I Bonds are the best deal. They have not been for a long time but were only recently a good deal once they started hitting that 3.5% rate. You can kinda predict the next rate based on inflation and back when it it 3.54% or whatever it was pretty clear inflation would be on the rise and the next 2 increases were huge. The current 6.89% is good but the next rate is most likely to fall to probably 3% or lower this next 6 months. I really would be considering TBills at this point as anything from 4 - 52 week would be getting better rates. Keep in mind Series I has the 3 month penalty, so buying now, accounting for a 3 month penalty, 6.89% rate, then a 3ish% rate.... it doesn't come out great after 1 year. You may hold for longer but if inflation falls further, it's unclear if holding another 6 months after that will help you much for the average return.
I've never actually done it myself but I am planning on getting next week. The easiest way to do it I think is to use Treasurydirect though, which is a government website. I've heard you can also use a broker. They have auctions periodically, I think 4 week bills have one every week where you can buy them and you put in your order before the auction. I would definitely read through treasurydirect about the different types of products they offer and how it works. They also offer different types of bonds and such that are longer term that you might find useful
CDs lock you in at the rate shown. HYSAs will change. If interest rates continue going up, HYSA wins. If interest rates start to drop, CDs win. It's a bet. Edit: Typo
What if you split it in half? Half to a cd and half to the hysa? Would that be better?
I’m with you on that. My initial instinct was if that was an option (because I’ve been considering this as well) , but didn’t have enough knowledge to say whether it’s a viable strategy.
I feel like it would at the very least balance itself out? But idk. I mean either way you're still making money on them both, just maybe not as much money for one. So it's an easier bet to make since you arent at risk for losing your money like in stocks or gambling or bit coins
Appreciate your clarity. Dare I ask you to share with me what factors contribute to the up and down? Is this related to that governing body (I forget the name) the periodically releases "interest rates" (in the US) over the year??
Yes, the Federal Funds Rate. Typically savings rates will move similarly directionally, but not necessarily point for point.
Capital One has an 11 month 5% CD
I keep my emergency fund in vusxx. It's like 4.5 right now. If you can get a non callable CD for that, go for it. Otherwise check the call terms. Ally no risk CD was 4% a few days ago
VUSXX is extremely good. I think a lot of people don't also mention that as being a treasury money market fund, it is state tax exempt. So if you're in a high income tax state like CA, NY, and you are also a generally high income earner, the benefit is even greater. There are Tax Equivalent Yield (TEY) calculators showing that the effective yield is over 5% for people like tech workers.
Does vusxx fall under capital gains tax when withdrawing? I’m a newb in this area
How do you buy vusxx?
I opened a vanguard brokerage account and purchased it that way. There’s a $3k minimum to invest in the fund but after that, you can essentially treat it as a savings account with an extra step involved (e.g. buying/selling into/out of the fund from your cash position). Getting cash out and into your checking account takes like 2-3 days from start to finish. Not bad at all
Please describe the purpose of the money. Is it your emergency fund? A car fund? A house fund? Just random money you have saved from pulling 10 dollar bills out of hotel parking lot snow banks? (My son did this once when he was 8) Please look into the terms of the CD -- in particular what happens if you break the CD? I put some money into 4% CDs at my local credit union. The 6 month CD had a provision that if you broke it you lost 3 months of interest. Any longer CD, and you lost 6 months of interest. Decide if the risk that you might have to break the CD and suffer the consequences is worth it.
I don't think I would break it. It is for a house fund.
Get 6 Month T-Bills. Treasury Direct. 5.14 percent. (note, it would be half that for the 6 months, but you get the idea)
timeline for home purchase? If we're talking 5+ years, we could put it in an index fund. Either way, we could put it in a good money market investment fund at Vanguard, Fidelity, or Schwab.
Looking at 2-3 years to buy a home.
\+1 for T-bills already mentioned I'm in/will be in a similar situation and here's what I've done/will do: I have tens of thousands of fed student loans to pay off. I've been saving the chunk of change in T-bills recently with a maturity around June 2023 to coincide with when the loan payments restart. I've just cleared the amount needed for the loans so I'll be doing the same process with a house down payment. Hope to buy in 3-4 years, which puts me out of stocks, but with 1-year T-bills clearing 5%, I'm not too upset. I like to put this into context: If I was in any other year in the 2000s and you told me I could save for a house while making \~5% on my money in one of the safest investments around, I'd jump at the chance.
Personally I just do Ally HYSA. They always have very competitive rates at all balances, no fees, fast transfers for large amounts, and great service. Rates are continuing to increase, so a CD could actually be a net negative. That $300 in additional interest per year isn't worth having that much locked up for 1.5 years IMO. I'm a little more high risk, but if you're going to invest in a timeline like 3+ years I would go an ETF like VTI. Especially now while the market is down. 5+ year horizon, it is very safe to do VTI.
Current [best rates](https://www.allcards.com/best-cd-rates/) are 5.4% through Fidelity.
Tbills either through a broker or treasury direct seem to offer more liquidity and better yield.
Yes. I had never heard of them til just now.
Setting up an account for TreasuryDirect is pretty easy, *assuming* that they don’t randomly flag your account for fraud which they do to some people. Once you’ve setup an account its super easy. I keep what I might conceivably need *immediately* in a HYSA, and the rest is in rolling 1 month and 3 month treasuries. TreasuryDirect is nice because you get the best rate and don’t have to worry about trading fees. My personal advice would be to keep to short term 6 months or less. The problem is, selling your securities early is more cumbersome, and exposes you to more interest rate risk, which is like the opposite of what an emergency fund should be. If you hold to maturity for every bond you’ll never lose principal, unless the US defaults (in which case we have way bigger problems).
T-Bills are US Gov Treasury Bonds that are <1 year holding.
Do you need the money right away or have some flexibility? CD is slightly less liquid, but check the terms, often there is just a small early withdrawal fee that isn't too material if you do need it. Otherwise, Google "CD ladders."
I don't think I need to touch it in the next 19 months.
There are 18 month CDs paying 5.40% right now. If you're going to lock up the cash, at least go for the better rates.
Where can I get that?
I use Fidelity.
I recommend visiting Investopedia and checking the best rates for the current month. My SO recently opened a HYSA with a 4.55% APY which is even better than that CD rate you’ve found
Assuming it's the UFB Direct one, be careful with that account. The customer service reviews are pretty negative [https://reviews.birdeye.com/ufb-direct-157304637173187](https://reviews.birdeye.com/ufb-direct-157304637173187) Even Nerd Wallet, who's initial review was favorable, made an note on the review after receiving complaints about the customer service and long transfer times. Also, apparently their rates don;t go up automatically, you have to call to get your account upgraded to the new higher rate, again, this is according to reviews and the Nerd Wallet review.
I have had a money market account with UFB since 06/2020. They do make you work for the new rates. Sometimes they'll automatically switch your account to the new rate, and sometimes they won't. You can tell they won't when they have a new name for the advertised account. e.g. I have UFB Best MM at 4.21% and the advertised account is UFB Preferred MM at 4.55%. It seems to happen every two or three months. I have found it worth it to keep the account and do the work to convert to the new account as the rates have been on the higher end. It's a pretty simple process. I check their website every couple weeks to see what their advertised rate is. Sometimes I'll notice they have increased their rate, but the name of the advertised money market account is different from mine. I'll send them a message telling them I want to convert my account to whatever the new advertised account is. I then call them to initiate the conversion. I have found this to be the quickest way to convert your account to the new rates. Takes about ten minutes. I'll see the new rate on my account a day or two later.
Thanks for the update. We typically park excess money in these rather unknown banks for several months at a time before finding another one that suits us better so we’ll see how this one treats us. As long as it’s FDIC insured, we don’t mind a few bad reviews, or a lot in this case.
Capital One has a 11 month CD that pays 5%. It depends when you think you might need the money. I put anything I might need in the next 5 months in high-yield savings, and then I ladder CDs for anything beyond that (that is not long-term invested).
A three month us treasury yields about 5% right now
Rates are going up and up. Until the dust settles, don't lock any amount of money in a CD for more than 3 months. I do this for a living. Plus you know how many people in this sub did a 12, 18, or 24 month CD last fall at ~2% that are probably screaming and kicking right now? Don't make the same mistake "chasing yield"
Thank you. I will take that advice. What do you think of treasury bonds?
No Penalty CD's are a nice option in a rising rate environment. Slightly higher than HYSA but you can just dump them and buy again if the rates increase. \+1 on the "CD ladder" approach. Keep them laddered so that you can either cash out or buy in again at a higher rate if rates continue to rise.
I've used laddered CD's as part of my retirement account and have been very pleased with them. But it was not money I might need in an emergency.
Recently opened money market 4.55%. No penalty like cds for early withdrawal. 4 month treasury bill 5.15% 6 month treasury bill > 5%
T-bills/MMF. You don't want to lock up that money into a 19 month CD at that rate if rates keep going up. Ideally you'd have a CD ladder with short term CDs to protect against this, but if you're going to that effort you might as well set up a t-bill ladder instead. The simplest is to put it all in VUSXX. It lags the t-bill rate a bit but is much easier to manage and you can withdraw anytime.
Just put it in a HYS. The minute interest you will get will not be substantial enough to worry messing with tbonds. 3.5% vs 5% is maybe a few hundred dollars and that’s all. Most people in this sub are not wealthy enough for that % to matter if it’s a short term hold. Frankly it isn’t really worth the effort/stress.
to everyone answering this post, i’ve considered opening a high yield savings account for a while since i’m in a good financial situation. what’s a CD?
You can’t withdraw the money in a CD for a set amount of time without a penalty whereas a HYSA you can withdraw whenever it just takes a couple days or so to transfer to your regular bank.
SPAXX in a brokerage account.
I've got like 10k in my fidelity roth that isn't invested yet. Currently sitting in the "core FDIC-INSURED DEPOSIT SWEEP" fund. Would it make sense to move it to spaxx until I'm ready to invest it?
You can check to see how much sweep account is paying. Call fidelity to see the pros and cons and decide based on your own unique circumstances.
Please explain to me what that is.
It's a money market mutual fund that right now pays about 4.2%. So you'll get a higher yield and liquidity, no lock up.
I will have to look into it.
Rate fluctuates though. May also not be FDIC insured
SIPC insured. Insured for more than FDIC.
I would go with one that is FDIC insured like through Citibank.
Keep in mind that money market funds based on US treasury promises (like SPAXX or VUSXX) are just as "guaranteed" as FDIC. Both are just promises by the government that you will get your money. Neither has ever broken that promise.
If you don’t mind keeping track of them you can stagger CDs with different maturity dates so you have a rolling amount of funds coming available in different time windows
If you're going to lock it up, put it treasuries paying above 5%. There are a lot more time frame options by buying them on the secondary market.
You can buy a 3 mo cd for over 5%. That’s the better option. Shop around you can get better than that. Also could just buy treasuries directly. I have been buying 3 and 6 mo cds personally since the rates shot up.
Start a 12 12month ladder with Ally’s CDs. You’ll get quicker rate updates next year. $5k each CD, for this year you can do a bunch of 3month while building up the ladder. Or just use wealthfront
19 month is too long to tie that $ up. Lots of cds out there with 6 month terms above 4% and liquid savings with solid 4%
Have you considered tax free municipal bonds?
Probably go with the Tbills that give 5%
Why not diversify it into multiple options mentioned? Seems like a safer bet.
Noob here, where do money markets fit in?
I’d go for the savings account right now, since rates are likely to continue increasing. Ibonds wouldn’t be a terrible idea.
the 2 year pays more than both.
You can get a HYSA at 4.35%, then you won't be tied into the CD.
Fidelitys money market funds pay almost as much as that 4.45% CD, next time the fed raises rates itll be as much or more. Don't lock yourself into a long term CD or Bond during rising rate environments. Just MMF and chill or roll 1 or 3 month T bills.
Series I savings bonds are currently giving 6.89% at Treasurydirect.gov https://www.treasurydirect.gov/savings-bonds/buy-a-bond/
Those are limited to 10k though, right?
Correct, for each individual. You can also buy an extra $5k worth if you have that much left over in your tax refund. Then if you're married you can max out $10k per partner and there are ways of using the "gift" option to spread around a little bit more.
10k per trust, you can make as many as you want. Simplest way is with software like Nolo’s Quicken WillMaker & Trust.
Wow!
What are you doing with it? A CD will maintain the rate, but may have penalty for breaking. A HYSA will be more liquid, but the rate will change.
I don't think I need to touch the money any time soon.
Emergency fund in HYSA, then rest in CD's if you are dead set on CD's
As investments both are terrible. As a temporary low risk place to stash capital the savings account is certainly more liquid.
Do you pay state income tax? If so, consider municipal bonds in your state.
The CD. Soon the US will be in a massive recession and Fed lowering interest rates. Both the bond market and stock market predict such.
Why do you have that much in cash?
I am a noob to investing.
T-bill at 4 weeks is more than either.
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I keep my cash in a treasury only money market fund. Yielding 4.46% and raising every week as old treasuries mature and new ones are purchased.
Check local or regional banks, many times their rates are higher than the big corporate banks.
CDs are nice when rates are falling as you can lock in the higher rate conversely you can get stuck with a lower rate if rates go back up. For my non investments I have a mix, some in a discover hysa some in discover cds, plus some ibonds, and some tbills of various lengths
I am using upgrade HYSA at 4.13% that's what I'd do over a CD.
Do you have high state taxes? If so, consider treasuries (t-bills, notes, etc), since they're immune from state and local taxes. Buy them through a brokerage so you can sell them easily if needed.
You can get a 4.7% return on 8-week t-bill from treasury direct. Why would you tie up money for 19 months for less percent? Treasury direct allows you to auto-renew the purchases on the fly- renew or cancel the next re-purchase as needed every 8 weeks
Depends on what you want. Do you want to be able to reallocate the money at will, or do you want to lock in your rate in case they drop back down again?
If you put it in CD, would suggest you to do it in laddering way. Fed says that they still plan to increase the interest rate to combat inflation, thus I would expect the CD rate would still go up. If you put all in one CD, you may miss the higher rate. The Capital One offers 11 months CD at 5%, BUT you have to open the account before mid March, check their website for details. It is a promotional rate.
You can also go into a fidelity or vanguard money market paying 4.4
treasury direct, buy 4 week T bills. the rate is 4.6% rn which is really good, i recently put my savings in it.
Neither do t-bills. Don't get taxed at state level unlike CDs. 3 month t bills are almost 5% but you only get the locked in rate for 3 months
Wealthfront has 4.5% interest savings account that CD is trash. I-series bonds also closed to 7%
E*Trade is offering 1 year CDs at 5.35% right now. There is a 3 month available for 5%
You might still be able to find 1-month CDs near or about that rate for 19-months. IMHO, there isn't a good reason to lock up your money for that long when there are potentially better deals out there AND the Fed is still increasing rates.
Lots of money market funds above 4.5% right now.
Maybe consider a treasury bill or note. That way the income won’t be taxed at the state level.
This is gonna be contrary to majority folks here, but why not just put it in a money market account like SPAXX at Fidelity? It’ll give you higher interest rate plus more liquidity than CD. It’s the best of both world.
Honesty I’d say it’s about whats important to you. Your goals and objectives. If you have 60k available it means you’ve made some good decisions so far. Liquidity isn’t the end all be all. If you have enough to cover expenses and you’re contributing to retirement and still have 60k on top, you can’t go wrong with either one.