Money Market Account Q

[HeidiO]

  I just pulled a little money out of a mutual fund and parked it in my savings account.  I plan on spending it in the next year on downpayments for 2 rental houses.  Does anyone have suggestions for money markets or other options to make a little interest on it?  I need to be able to access it quickly, without penalty, b/c I am planning on spending it soon-ish.  My bank's interest rate caps out at 0.05, so why bother.

[arebelspy]

One note: don't move it around too much, or you'll have a fun line of paperwork for the broker.  You want your money "seasoned" - i.e. sitting in the same account for > 60 days, when qualifying for a mortgage.

[grantmeaname]

If you're talking about a money market savings account that works like a regular, at-will deposit savings account, you won't find anything. The best interest rate at the best credit union in Columbus, OH (a large-enough metropolitan area) was like .4% interest (so low, you lose money relative to inflation), because people are so scared of investing that deposit interest rates are driven way, way down. The same will go for many retail banks... the only exception I can think of would be an online bank like Ally or ING Direct. You may want to check them out. What is wrong with having it in a mutual fund exactly?

[Mr Mark]

I'm getting 0.85% or so with Ally Bank savings account, FIDC insured.

It's all on-line.

[MrSaturday]

I opened an online savings account with Alliant CU a couple of months ago that has been paying 1%.

[HeidiO]

What is wrong with having it in a mutual fund exactly?

  Biggest issue is I want the money in a joint account with both my wife's and my  names, so I had to pull it out of the account it was in (just my name) and let it sit in our joint checking account.   Plan is I'll buy the first house and she'll buy the second.
Heidi

[arebelspy]

You may want to check them out. What is wrong with having it in a mutual fund exactly?

Fees and expenses.

[grantmeaname]

You may want to check them out. What is wrong with having it in a mutual fund exactly?

Fees and expenses.

I understand that mutual funds are inferior to index funds. That's not what I was asking. She took it out of the mutual fund to have it sit in a savings account. She's choosing to throw away money by not investing it. I was asking what the benefit of that was.

[arebelspy]

You may want to check them out. What is wrong with having it in a mutual fund exactly?

Fees and expenses.

I understand that mutual funds are inferior to index funds. That's not what I was asking. She took it out of the mutual fund to have it sit in a savings account. She's choosing to throw away money by not investing it. I was asking what the benefit of that was.

Ah, gotcha.

Okay, the answer then is: liquidity, stability (less variance), and ability to use at a moment's notice.  Since she's using it for money down on houses, she'll want to show it seasoned to her lender - i.e. in her account for at least 60 days.  She can move quick on a property and do a fast escrow without having to wait to sell and receive the money, and she doesn't have to worry about the value dropping.

Over the long run, she's losing money, and it may be better to do it closer to when she needs the money (though that's sort of timing the market) or pull out a little at a time (sort of reverse dollar cost averaging), however it may have just been easier to close the whole account, which is I'm guessing what she did.  And for the purposes she's intending the money for, it's not terrible to have it sitting in a savings account (or Money Market account).

[grantmeaname]

Got it. Rereading the first post, I see HeidiO wants to spend it "in the next year" (in the next 12 months), not "next year" (in 2013). Makes more sense.