I’m a big proponent of keeping cash working hard rather than turning it over to the financial services industry and settling for the almost 0.00 percent APY they’ll pay. If you’re looking to achieve a greater return on your money as well, here are the three best places I’ve found to keep your cash working hard, along with a comparison of what might work better for you. All are backed by the US Government, which I happen to think is still worth something.
Salem Five Direct – Online savings
Ken Tumin, founder of DepositAccounts.com, told me about this unique online savings account paying 1.25 percent APY. And what makes this Salem Five Direct savings account unique is that it’s guaranteed to pay this rate until April 1, 2012. We are not talking an April Fool’s joke here, it’s on their web site. Many banks and credit unions offer great rates only to reduce them weeks after the account is opened.
This account is only available online and only to new customers. These types of offers are typically designed to bring in new customers, so I wouldn’t count on Salem Five to keep paying you a great rate after the 11 month guarantee. To me, these types of promotions scream that they don’t value current customers as much as potential customers.
Ally Bank – No Penalty CD
Ally Bank has an 11 month No Penalty CD paying 1.15 percent APY. As the name indicates, you can withdraw the funds at any time without a penalty. Thus, if you need your cash back or find a better rate, you can take back your money.
While this rate isn’t quite as high as Salem Five Direct, it is open to all depositors. Ally Bank tends to consistently offer high rates, rather than teaser rates meant to reel in non-customers.
Ally Bank – Five-year CD
Ally Bank still has the five year CD paying 2.40 percent CD with the incredibly easy 60 day early withdrawal penalty. Even after paying the penalty, this CD would still yield about 1.97 percent APY over the 11 months the Salem Five Direct is guaranteed for, or the 11 month Ally no penalty CD.
Here’s a comparison of the three best places to stash your money. Salem Five Direct wins for periods of four months or less, but the Ally Bank five-year CD is still the champ over four months and a week or longer.
Ally Bank doesn’t allow partial withdrawals on the five-year CD. Thus, if you put in $100,000 and find yourself in need of $10,000, you’d have to cash in the whole CD and hope that rates are still as high.
This may seem like a deal breaker, yet the problem is easily solved. I opted not to open up a $100,000 CD, I opened ten $10,000 CDs. So any cash I need, I can take out in chunks of $10,000. The customer representative was actually willing to open up a hundred $1,000 CDs, but I opted for the simpler approach. Here are some more specifics on the Ally Bank five-year CD.
$1,000 for an hour of your time?
Many people say that the above rates just aren’t worth their time to open. I reframe the problem and ask whether they would let me hire them for one hour for $1,000. I always get a yes.
Well, if you have $50,000 earning nothing, getting a net 2 percent is worth that $1,000. It shouldn’t take more than an hour to open the account and stash your cash. The problem is that you have to overcome the power of inertia to get it.
Financial institutions paying you virtually nothing for your cash amounts to yet another hidden fee. Don’t make them rich with your cash!
Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to $50 million. He is mocked on a semi-regular basis by some financial professionals for his hourly fee model and its obvious inability to make him rich. Roth is also the author of How A Second Grader Beats Wall Street. He teaches behavioral finance at the University of Denver and is an adjunct faculty member at Colorado College.