Where to keep short/medium term money? (and how much)

[scottyent]

Hey all,

So I've been trying to put as much money as I can into my long term investment account, and my goal is to not touch that for a long long time. However, I was wondering where you all store your short term money, and how much is appropriate to save in that short term bucket?

For example, I run a business and so I put aside tax money, which sometimes can mean having 20-30k in our online savings (.95% APR). Having that much (which is about the same as my investments) in a savings account making such a low percentage stresses me out. I just feel like it's sitting there NOT making much money when it should be earning more. At my small amount of money, I feel like every dollar getting in that long term savings as early as possible is really important.

But if I throw it in the long term investments, it's possible the account will be down when I need the tax money, and so I won't want to withdraw it.

Is this wrong thinking? I just really hate money sitting there making .95%, especially since it's half my assets.

[BigHaus89]

A high % savings account like the one you have is likely the best place to keep the money. Try to change your mindset from losing out on investment gains to making at least some money off of that cash sitting there(most savings accounts give you ~0%). 

[Raenia]

Since it's specifically tax money you're setting aside, I would just be grateful that you're getting any return at all on it.  Most people never see a cent of that money to make any return on, and in fact many are losing out on returns of money that actually does belong to them due to over-withholding.

If it helps you feel better about it, try not thinking of that money as "yours."  This is the government's money, which they have graciously allowed to you hold on to for now, making a small return.

[Poundwise]

Laddered CDs (i.e. 1 month, 2 month, 3 month, 6 month, and 1 year CDs) in quantities so that you always have enough money going liquid to pay taxes at every quarter.

[scottyent]

Sigh alright, that's what I figured but was hoping there was a good alternative. I'll take the .95% for now, and will consider doing laddered CDs for money I'll need in the next 2-5 years.

Thanks!

[jamaicaspanish]

Another plug for Lake Michigan Credit Union.
3% on up to 15k. 
10 debit card sales / month (10 x $1.00 egift cards on Amazon).

[WildJager]

As a thought experiment, if you have enough in investments to draw down 4% (or 3%, or whatever your WR will be in retirement) you could theoretically be safe having the tax money invested.  So, for $20-30k you'd need $500-750k invested for your 4% WR to pull the tax bill.

It would almost behave like FIRE withdrawal training.

[Car Jack]

If you have excess that needs to be available but you don't expect to have to use for years, Ally has a 2% 5 year CD with 150 days of interest withdrawal penalty.  Once you're at about a year, you're ahead of the normal 1% if you do have to use the money.