Author Topic: Where to keep our money? Savings account, retirement account, third option?  (Read 595 times)

meerkat

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We currently have a checking account, savings account, 401ks and an IRA. I think the 401ks/IRA have a ROI of around 7%? Something like that. Our savings account only has a 0.25% interest rate so it's not even keeping up with inflation.

My spouse has concerns about locking away money for almost two decades in the retirement accounts, I don't like having it just sit in savings with a terrible interest rate. We could potentially move our savings to an online bank with 2.5% interest, but are there other options that might have a better rate of return that don't feel as much like "locking away" the money.  He's generally good about having mustachian habits but he did have a phase in his life of "I can eat or I can pay the power bill but not both" and still has some money fears around that, so I want to be respectful of those feelings.

Chickadee

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I am new - like few weeks old to mustache land

This is what I am doing .. I can do better (and will)

Moved from low % savings act the bulk to Ally (2.1%) there are higher % but I felt "safe" starting here.
Put 1/2 of that in a 12 month CD at 2.75%
I love the app and I do my "living bills" from credit union so the limit of 6 transitions per statement is not a issue (2 deposits direct go in, 1 monthly expense withdrawal to credit union goes out)
keeping only 1.5 month expenses in credit union no fee local account.

Maxing out my 403b (I found out I was under by 5-6k a year and am doing that step to start giving a bit more ever 2 weeks to meet that goal by 12/30/19)

I do not qualify for RothIra and never started one when I could have (could have qualified for 10 years!) - live and learn. I am not comfortable with other IRA, my understanding is limited but I am reading and learning.



Tracyl-5

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We both have Vanguard brokerage accounts.  Same as cash; you can sell and withdraw at any time.  You just have to pay taxes on dividends earned and capital gains if you sell for a profit.  In the past year, my ROI was 7.3%.  I mostly have shares of VTI, which is the ETF equivalent of VTSAX. 

frugaliknowit

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Not sure what you are asking.  Is your question:  "Where should we keep our liquid savings", or is it more like:  "Where should we put our money that we now have in a savings account...I think we should trade in some liquidity and add some risk so we get better returns...".

If your concern is that your savings account rate is too low, just find an online bank or put it in Vanguard Prime Money Market or similar.

If you want to just add some risk (and potentially return) to your currently liquid funds, you could put it in a balanced fund, realizing that if you needed to grab some of it, it could be down up to maybe 25%...most years balanced funds are up ~6%ish...
« Last Edit: July 17, 2019, 01:55:21 PM by frugaliknowit »

dandarc

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"Locking money away for 20 years  . . ." isn't exactly accurate:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

And if you want returns like you are getting in your IRA and 401K, just buy the same or similar funds in a taxable account.

terran

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Make sure you understand that accounts and investments are different things.

IRA's don't have a certain rate of return, the investments you buy with the money in retirement accounts have returns, the accounts just have certain tax advantages.

You should have an appropriate mix of investments including, stocks, bonds, CDs, cash, etc. You should put those investments in appropriate accounts for the best tax treatment (bonds in tax advantaged accounts for example). You should also make sure you have enough cash in accessible accounts to pay irregular and/or unexpected expenses.

You can easily get better than a 0.25% return by opening an online savings account to hold your cash needs.

meerkat

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I am new - like few weeks old to mustache land

This is what I am doing .. I can do better (and will)

Every little bit helps!

Not sure what you are asking.  Is your question:  "Where should we keep our liquid savings", or is it more like:  "Where should we put our money that we now have in a savings account...I think we should trade in some liquidity and add some risk so we get better returns...".

If your concern is that your savings account rate is too low, just find an online bank or put it in Vanguard Prime Money Market or similar.

If you want to just add some risk (and potentially return) to your currently liquid funds, you could put it in a balanced fund, realizing that if you needed to grab some of it, it could be down up to maybe 25%...most years balanced funds are up ~6%ish...

We have to keep our liquid savings as liquid savings, I'm just trying to find somewhere that has a decent interest rate so we're not losing money to inflation over the years. My other half is extremely financially conservative, our savings is roughly two years of our annual expenses so it pains me a bit to have all that sitting around doing nothing.

We both have Vanguard brokerage accounts.  Same as cash; you can sell and withdraw at any time.  You just have to pay taxes on dividends earned and capital gains if you sell for a profit.  In the past year, my ROI was 7.3%.  I mostly have shares of VTI, which is the ETF equivalent of VTSAX.
Thank you! I think we might look into something like this.


"Locking money away for 20 years  . . ." isn't exactly accurate:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

To my spouse if he can't withdraw it right now, it's locked away. If the answer to "Can I access my money now" is longer than "Yes" then he's not crazy about it. It's not logical, there's Feelings involved and I want to respect that baggage even though it drives me a bit crazy sometimes.


Make sure you understand that accounts and investments are different things.

Yes, but in this context I'm trying to look at all our options of places we can park our money. The me from not that many years ago just figured there was the bank. Then the bank and my work's retirement fund, whatever it was called. Then I found MMM and figured out what 401(k)s and IRAs were, then looking around on Vanguard's website the other night there were even more things that I wasn't sure where they fell in terms of accounts vs. investments so I figured I'd also the MMM crowd.

dandarc

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"Locking money away for 20 years  . . ." isn't exactly accurate:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

To my spouse if he can't withdraw it right now, it's locked away. If the answer to "Can I access my money now" is longer than "Yes" then he's not crazy about it. It's not logical, there's Feelings involved and I want to respect that baggage even though it drives me a bit crazy sometimes.
I mean, the answer is "Yes" - unless the time requirement is so short that 2-3 days for a transfer to clear is too much? Even the "just pay the penalty" option isn't a super bad outcome.

meerkat

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"Locking money away for 20 years  . . ." isn't exactly accurate:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

To my spouse if he can't withdraw it right now, it's locked away. If the answer to "Can I access my money now" is longer than "Yes" then he's not crazy about it. It's not logical, there's Feelings involved and I want to respect that baggage even though it drives me a bit crazy sometimes.
I mean, the answer is "Yes" - unless the time requirement is so short that 2-3 days for a transfer to clear is too much? Even the "just pay the penalty" option isn't a super bad outcome.

It's not super bad, but it scared him off the idea last time we talked about it last year.