You could buy short term treasuries instead of a savings account. It's free at Vanguard.
I can Google this for more info, but I know nothing about short term treasuries. Care to give me the bullet points on what these are and what type of returns to expect?
Yea, I went back to re-read your post after seeing everyone recommending buying real estate and whatever, but obviously if you want to keep that money liquid (so, real estate is out).
Short term treasuries right now have 0.19, 0.28, and 0.35 for 1, 2, and 3 year bills. Since they are so short term, they aren't very susceptible to interest rates changes, so they behave a lot like just regular cash. So if you might need this money for whatever reason, you can be reasonably sure that your short term treasuries haven't taken a huge hit, like that money might if you put it in stock/bond indexes, or whatever.
Obviously most liquid is cash in a savings account, ING has 0.8% interest. I don't understand how they can safely offer that rate, since the safest investment available that I know of, t-bills, are pretty far below that. Which would lead me to think that they use that money for much riskier investments in order to get you your 0.8% cut while also making a profit, and I'd prefer to take risks with my non-cash allocation and emergency fund.
Again, that's just how I see it, other people might throw out an enlightening post, which would be cool.