Early Retirement Extreme Forums

Early Retirement Extreme Forums » Money Questions

1. 

   Fred Tracy
   

   Journeyman
   Joined: Jan '12
   Posts: 101

   Hey all, I've got a situation where I'm going to be saving up $10k to $25k in the next couple of years to buy some land and start building a simple home.

   Eventually, I want to invest my money in stocks, mutual funds, or whatever. But since I'm only going to get up to potentially $20k before I spend it all (and start saving again), what would you guys do with it if you were in my shoes?

   Would you invest that relatively small amount of money still, or leave it in a savings account? Or perhaps some other optoin? I'd like the money to be as liquid as possibly, and obviously making a good interest rate helps too.

   Thanks~!

   Posted 1 year ago #
2. 

   Spartan_Warrior
   

   Master
   Joined: Dec '11
   Posts: 502

   I keep most of my emergency fund of $7k in an online savings account accruing ~0.85% APR. Most savings accounts are going to fall somewhere around there. Liquidity and security definitely come at a cost to earning potential. However, investing small amounts of money is not worthwhile imo. It's hard to diversify well or actively trade without eating up a significant amount in transaction costs.

   I'm in a similar position where I'm just starting to save for early retirement in non-retirement accounts. I always thought of 20k as a good starting point for me personally to begin investing the money I've saved. If you know your investing habits are going to be relatively innocuous--e.g., buying and holding bonds and ETFs, only trading occasionally--you could probably start sooner.

   Others more knowledgable than I will chime in, I'm sure.

   Posted 1 year ago #
3. 

   George the original one
   

   Expert
   Joined: Jul '10
   Posts: 1,941

   1-2 years is a short timeframe in investing, so any FDIC high-interest account is your first choice. I-bonds might be a second choice. Anything else is likely too volatile if you want to meet that spending goal at the end of 1-2 years.

   Posted 1 year ago #
4. 

   jacob
   

   Expert
   Joined: Jul '10
   Posts: 3,298

   Or put in CDs.

   Posted 1 year ago #
5. 

   dragoncar
   

   Expert
   Joined: Oct '10
   Posts: 1,287

   Send to me at 15 Yemen road, Yemen

   Posted 1 year ago #
6. 

   Fred Tracy
   

   Journeyman
   Joined: Jan '12
   Posts: 101

   Thanks guys, a banker told me CDs so I may do that. Hmm, a FDIC high interest account? Forgive my ignorance.. FDIC means it's backed up, right? So I can just go find any account? You mean like a savings account?

   I think my current savings account is like .01% or something god awful. I just have my money sitting around in checking at the moment. I suppose any return is better than none!

   I like the 20k idea spartan, i may do something similar.

   Posted 1 year ago #
7. 

   Dragline
   

   Master
   Joined: Aug '11
   Posts: 963

   I'd go with the savings account option mentioned, especially if you are saving in small increments each month. You would not want to incur any transaction costs.

   My bank used to give a short-term bonus for opening up certain types of savings accounts, but no longer does that.

   But here's a list of higher yield savings accounts: http://www.emoneycentral.com/savings-account-rates/

   You can probably find more with a little research.

   Posted 1 year ago #
8. 

   Chris
   

   Journeyman
   Joined: Jul '10
   Posts: 195

   Right, FDIC-insured accounts means that the government is insuring your balance (up to $250k). Most US-based banks are FDIC insured.

   The "high-yield" savings accounts are often found at online banks, such as Ally or ING Direct. They will offer savings accounts and CDs. The interest rates aren't so great right now, so I'd first prioritize zero fees when selecting a bank.

   Oh, and if you want a $25 ING referral link, PM me (-:

   Posted 1 year ago #
9. 

   livinlite
   

   Journeyman
   Joined: Feb '12
   Posts: 108

   Depending on your skills and time, maybe you can invest in local/tangible stuff you can fix and flip instead of engaging the market, paying gains taxes/commissions, etc. ??

   Are there some easily liquidatable goods you can hunt for, buy distressed, and sell over time?

   Maybe a craigslist feed for "need to sell"?

   I'm envisioning a semi-pawn-shop type scheme here...if you have the storage space and free-time that wouldn't be better put to use elsewhere.

   Just a thought since you don't have the $20K sitting around just yet..

   Posted 1 year ago #
10. 

    JohnnyH
    

    Expert
    Joined: Jul '10
    Posts: 1,363

    I'd put it here (assuming you're in OK)
    http://www.coppermarkbank.com/my/checking.cfm

    3.93% on balance up to 25k if you meet the following:
    * Receive Coppermark Bank eStatements. A valid email address and ability to receive electronic notification is required.
    * Minimum of 16 posted POS debit card transactions (PIN or signature based) for the purchase of goods or services.
    * One ACH credit (for example, direct deposit).

    $82 a month on 25k is pretty great right now... Once you get over 25k, I'd get a brokerage with free ETF trades and get some index/bond ETFs.

    Posted 1 year ago #
11. 

    George the original one
    

    Expert
    Joined: Jul '10
    Posts: 1,941

    CDs, savings accounts, and checking accounts are usually FDIC-insured. Money market accounts usually are _not_ FDIC-insured. Just because an institution says they're FDIC-insured does not mean the product they're offering you is insured... caveat emptor.

    Credit unions use a different insurer (NCUA). I'd be comfortable with it, too, in lieu of FDIC, but you also have to check that the product they're offering is actually insured (just like with banks).

    Posted 1 year ago #
12. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Thanks for the input guys, this is a great forum. livinlite, that's a good idea.. I don't know how much I would enjoy it, but it could be worth it. I used to do the same thing on a video game I used to play (runescape) and found it amusing.. so a real life version might be equally fun. :)

    JohnnyH, 3.93% sounds fantastic.. I'm using Chase bank and like them, except for the crappy interest rate, but as soon as I save up a semi-decent amount of money I'll look into what you said.

    Of course, it may take awhile to actually make 16 debit card transactions.. unless I just go buy gum or something. But that's a lot of gum!

    Posted 1 year ago #
13. 

    Maus
    

    Master
    Joined: Jul '10
    Posts: 504

    There are pitfalls to the high-interest checking account programs. They are all predicated on the merchant fees associated with frequent use of the debit card. For the account holder, failure to comply stringently with the requirements typically results in a monthly fee and a vastly reduced rate of interest that will almost never cover the fee, leaving one with a lower balance in favor of the bank.

    Note that only debit transactions accompanyed by a PIN or a signature qualify. This is becuase these result in a 2% or $0.40 minimum charge to the merchant. Those transactions which are automatically processed often cost $0.10 per swipe. Most merchants automatically process transactions under a low-dollar threshold. For example, my grocery store automatically accepts anything less than $25. So buying gum or a soda to satisfy the 1 of 16 POS debit card requirement would fail.

    Sorry to rain on the parade, but these accounts really only work for people who spend quite a bit a month anyway.

    Posted 1 year ago #
14. 

    Mo
    

    Master
    Joined: Jul '10
    Posts: 442

    @Fred, something to consider as well, if you're married, depending on your state-- if you're temporarily parking a large sum of money in an account, making the account a "tenancy by the entirety" account could have some advantages. It won't earn you more money, but it could provide a layer of asset protection.

    Posted 1 year ago #
15. 

    JohnnyH
    

    Expert
    Joined: Jul '10
    Posts: 1,363

    @Maus: I'm not sure I understand the $ threshold you are talking about?... I've had 6 rewards checking accounts with different banks and most of the transactions were under $2. Although there was one bank that specifically required $10 minimums. I received high interest on every statement save one, that had a bizarre billing cycle of altering Mondays/Fridays. Definitely read the fine print, but once your system is in place it is easy money.

    Lots of creative ways to meet the requirements. I would say outside of bait and switch rate drops, I've almost entirely positive experiences with rewards checking accounts.

    Posted 1 year ago #
16. 

    celliott
    

    Apprentice
    Joined: May '11
    Posts: 63

    @Maus

    Like JohnnyH, I've not found the limitations you mention either.
    Our credit union here in Oklahoma runs the same program, but all my swipe transactions count toward the higher interest. It's one of the best deals offered by any banking institution. I thinks it's a tremendous and very safe idea!

    Posted 1 year ago #
17. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Hey guys. I'm looking into Coppermark Bank in particular, where I could get 3.93% on a checking account.

    The problem is those required 16 POS pin/signature transactions! I don't think I swipe any card 16 times a month. If I had 10k in the bank, I'd be getting ~$32 a month.

    Even if I take their requirements to mean that ANY debit card swipe counts towards the 16 (like gum purchases), I probably only have like.. 8 legitimate card swipes per month. I'd have to make an additional 8 swipes to get the high interest.

    So each additional swipe would have to be four dollars or less. Honestly, I could buy eight extremely cheap items and still make a profit of ~$20 a month, but that's assuming that they allow ANY debit card transactions in the first place, and it's also assuming all that trouble is worth $20 bucks.

    If I had 25k in the bank, it would look better, but I'm learning towards just getting $10k as a downpayment on a house then investing after then.

    So, does this make sense? I'm just making sure I understand it right - given this data, it seems silly to get a high-interest checking account for my particular situation, no?

    Which I suppose leaves me with CDs and such. But since I'm only saving up $~10k before I'm ready to invest like a big kid, perhaps I'll just leave it in my account anyway.

    Any advice?

    Posted 1 year ago #
18. 

    JohnnyH
    

    Expert
    Joined: Jul '10
    Posts: 1,363

    I wouldn't count the purchases as lost money. You have to buy some things right?... I used to go to a grocery self-checkout at odd hours and just purchase my normal groceries 1 item at a time. I'd accomplish all the transactions, without buying anything frivolous and in only an extra 5 minutes max.

    Do you buy gas? Depending on the gas station you can do 2-4 transactions per trip to gas station.

    If you're looking at a house down payment, I'd certainly avoid a CD (can't access it easily). I still think the checking account makes sense if you're saving.

    If you're looking to buy an inexpensive house, I'd look to keep saving and buying it all cash... If you are an all cash buyer you will be able to buy at auction for 25% (or more) under list. Also, fees associated with buying with a mortgage are many thousands higher than buying cash, probably $2k min, even on a 40k mortgage (which can be hard to get because it is too "small" for many lenders).

    Posted 1 year ago #
19. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Wow Johnny, thanks for that. Didn't think of the idea to buy groceries one at a time.. brilliant.

    Hmm.. maybe I will try for an all-cash buy. That could actually be a very good idea, especially because mortgage fees would raise the price of my house quite a bit.

    Anyway I will have to look back into this - thanks!

    Posted 1 year ago #
20. 

    Fred Tracy
    

    Journeyman
    Joined: Jan '12
    Posts: 101

    Great, I've signed up for a Coppermark account. I'll keep you guys updated on how it goes!

    Posted 1 year ago #

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