[Need help - Safe place to put $125k?]

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6d1v7x3
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[Need help - Safe place to put $125k?]

Post by 6d1v7x3 » Wed Oct 09, 2019 8:04 am

Hi guys I'm asking this question on behalf of someone who is in their late 60s and no longer works. This person has $125,000 sitting in a savings account at a brick-and-mortar bank. What would you guys recommend they do? Also, this person might need to take out money in case of an emergency. I'm completely ignorant on this subject so please forgive me. Thank you all very much for your help.

HomeStretch
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Re: Need help

Post by HomeStretch » Wed Oct 09, 2019 8:07 am

Is the money 100% of the friend’s savings?

The friend should keep any money that is their “emergency fund” in a high yield bank account or no-penalty CD so the money is at low-risk, liquid and available.

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Wed Oct 09, 2019 8:11 am

They also have $45,000 in an IRA and receive limited social security. Sorry for leaving out those details.

Jack FFR1846
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Re: Need help

Post by Jack FFR1846 » Wed Oct 09, 2019 8:13 am

Are they willing to do online? If no, then I guess they could walk around to local banks and credit unions and find the highest paying account they can find with reasonable penalties for early withdrawal.

If yes, then there are tons of options. Ally is probably the easiest and a go to for a lot of people. Others pay higher interest, but they're likely making zero now.
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fabdog
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Re: Need help

Post by fabdog » Wed Oct 09, 2019 8:14 am

they are likely getting very little at the brick and mortar bank (maybe .1%) So moving to on online bank like Ally, Marcus, etc would get them a much better interest rate, still FDIC insured, and access to the money as needed.

Given that his is most of their savings they really can't afford to take on any risk, but they can easily get a much better return on their funds

Mike

22twain
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Re: Need help

Post by 22twain » Wed Oct 09, 2019 8:15 am

We need more information. Does this person currently collect Social Security and/or a pension? Are there other assets such as an IRA or 401(k) plan from work? Are these enough to cover spending needs?

[OK, now I see you've added some information while I was writing this.]

Does the $125K need to provide regular income, or is it intended as an emergency fund or reserve for major medical expenses etc.?
My investing princiPLEs do not include absolutely preserving princiPAL.

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Wed Oct 09, 2019 8:27 am

I should also add that the person needs to dip into this savings account monthly to make ends meet but he is interested in opening some sort of investment account for a portion of the money. And he just informed me it's actually only $120K. Thanks again for any help.

HomeStretch
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Re: Need help

Post by HomeStretch » Wed Oct 09, 2019 8:30 am

As your friend uses 100% of Social Security Income and 100% of IRA required minimum distributions plus dips into the $120k bank account to cover monthly expenses, the $120k should ONLY be in a high yield bank account or no-penalty CD for maximum safety and accessible in emergencies.

Sounds like your friend is trying to take more risk to increase savings yield. That would be inadvisable. Your friend needs to spend prudently and preserve the $120k. Hopefully your friend has a Plan B if the money runs out. There may be community programs available that can help with housing, food, etc.

Edited based on OP’s latest response.
Last edited by HomeStretch on Wed Oct 09, 2019 8:40 am, edited 3 times in total.

Nowizard
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Re: Need help

Post by Nowizard » Wed Oct 09, 2019 8:34 am

Orion Federal Credit Union in the Memphis area offers a 4% savings account. I do not know if they allow accounts from other areas. One can deposit up to $25,000. Requirements are that an automatic transfer of funds must occur at least monthly. A SS check would answer that question. There must be several debit charges monthly with a combination credit/debit card that comes with the account, and an account holder would also be able to write checks on the account, but it must stay at a given balance that I assume is $25,000. Someone could place and assure that $25,000 met these requirements and have another account. It would presumably involve writing a monthly check from the SS deposit for depositing into another account if two accounts were desired. This assumes that money from monthly SS is required to meet expenses. There may be other institutions with similar accounts, and 4% is an excellent return in today's environment.

Tim

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ruralavalon
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Re: Need help

Post by ruralavalon » Wed Oct 09, 2019 11:42 am

Please simply add any new information to your original post using the edit button (the pencil icon near upper right corner of your post), it helps a lot if all of your information is in one place.

6d1v7x3 wrote:
Wed Oct 09, 2019 8:04 am
Hi guys I'm asking this question on behalf of someone who is in their late 60s and no longer works. This person has $125,000 sitting in a savings account at a brick-and-mortar bank. What would you guys recommend they do? Also, this person might need to take out money in case of an emergency. I'm completely ignorant on this subject so please forgive me. Thank you all very much for your help.
What is this person's age?

What interest rate does this person receive from the bank savings account?

To find interest rates for savings accounts and CDs available elsewhere see: www.bankrate.com.

6d1v7x3 wrote:
Wed Oct 09, 2019 8:11 am
They also have $45,000 in an IRA and receive limited social security. Sorry for leaving out those details.
What fund firm is the IRA with? What investments does this person hold in this IRA?

How much is the monthly Social Security benefit?

6d1v7x3 wrote:
Wed Oct 09, 2019 8:27 am
I should also add that the person needs to dip into this savings account monthly to make ends meet but he is interested in opening some sort of investment account for a portion of the money. And he just informed me it's actually only $120K. Thanks again for any help.
How much does this person need to withdraw monthly from the savings account to meet their living expenses?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Wed Oct 09, 2019 9:48 pm

He gets $1,300 from social security plus on average he uses another $1200 per month from his savings. He thought that by putting about $50,000 in a Vanguard account of some kind he could make money on his savings. Is that not a good idea?

Grt2bOutdoors
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Re: Need help

Post by Grt2bOutdoors » Wed Oct 09, 2019 9:53 pm

6d1v7x3 wrote:
Wed Oct 09, 2019 9:48 pm
He gets $1,300 from social security plus on average he uses another $1200 per month from his savings. He thought that by putting about $50,000 in a Vanguard account of some kind he could make money on his savings. Is that not a good idea?
Bad, bad idea. At the rate your friend is going be he’s going to be out of money in about 8.5 years. Can he get a part time job to bring in some money to delay depletion of the account? He can not afford to take any sort of risk with this being the entirety of his nest egg. The only investment I could suggest would be an FDIC insured certificate of deposit and the best yields would be in the 2 to 2.5% range annually.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HomeStretch
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Re: Need help

Post by HomeStretch » Wed Oct 09, 2019 10:02 pm

Is your friend able to work part-time to help the portfolio last longer? Any other income sources - inheritance, government assistance?

Your friend (late 60s) is withdrawing 8.7% of the $165k portfolio (= savings $120k + IRA $45k). With 2% earnings, the portfolio will fund ~12-15 years of living expenses. The average life expectancy of a male late 60s is 14-16 years.

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Wed Oct 09, 2019 10:11 pm

He has a bad knee so he can't stand or do many activities which is why he doesn't know what kind of part time job he can get. Also, do you guys know what the highest earning CD's or savings accounts are currently? Thank you again.

Morik
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Re: Need help

Post by Morik » Thu Oct 10, 2019 6:16 am

If you look on bankrates.com or similar sites they will list the current interest rates at a veriety of banks.

You can also find CDs listed on that site and similar sites.

Right now vio has one of the highest rates I'm aware of (2.42%). CFG has 2.5%.
For someone unused to online banking I'd probably stick with a well known, easy to use bank though. E.g., Ally has a 1.9% rate (they may have just lowered to 1.8%?). I've heard popular direct (2.3%) is good too, but have no personal experience using them.
Ally is easy to use, good customer service.

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Thu Oct 10, 2019 6:23 am

Morik wrote:
Thu Oct 10, 2019 6:16 am
If you look on bankrates.com or similar sites they will list the current interest rates at a veriety of banks.

You can also find CDs listed on that site and similar sites.

Right now vio has one of the highest rates I'm aware of (2.42%). CFG has 2.5%.
For someone unused to online banking I'd probably stick with a well known, easy to use bank though. E.g., Ally has a 1.9% rate (they may have just lowered to 1.8%?). I've heard popular direct (2.3%) is good too, but have no personal experience using them.
Ally is easy to use, good customer service.
I'd be helping him out so online access is no problem. Do you have experience with Vio or CFG?

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RickBoglehead
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Re: Need help

Post by RickBoglehead » Thu Oct 10, 2019 6:27 am

6d1v7x3 wrote:
Thu Oct 10, 2019 6:23 am
I'd be helping him out so online access is no problem.
To clarify what this means - is your friend sitting with you and logging in on your computer? Or, are you logging in on your computer instead of them and doing the transactions for them?

If the latter, you should note that this violates the rules for the online financial institutions and if they discover the activity they may close the accounts.

We had Ally catch this when someone with POA authority was logging in from state A but account owner resided in state B. They require online activity come from the account owner.
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Re: [Need help - Safe place to put $125k?]

Post by Jack FFR1846 » Thu Oct 10, 2019 6:30 am

What I do is I put $50k in a Redneck MegaMoney account for 1.4%. That's their max. But it sounds like this person doesn't have the wherewithall to figure that out so perhaps they should just leave the money where it is. I'd think that there's more risk of them putting the money into some scheme or whole life policy, focusing on the claims of "more income" lies that the insurance salesman spouts.

As a point of interest, Ally just dropped it's savings rate from 1.9% to 1.8%. My credit union pays 1.9% on their LTD account with a minimum of $25k and only one withdrawal a month allowed (DCU). I would expect that if Ally is dropping its rate, everyone else is going to follow suit.
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student
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Re: [Need help - Safe place to put $125k?]

Post by student » Thu Oct 10, 2019 6:33 am

Jack FFR1846 wrote:
Thu Oct 10, 2019 6:30 am
What I do is I put $50k in a Redneck MegaMoney account for 1.4%. That's their max. But it sounds like this person doesn't have the wherewithall to figure that out so perhaps they should just leave the money where it is. I'd think that there's more risk of them putting the money into some scheme or whole life policy, focusing on the claims of "more income" lies that the insurance salesman spouts.

As a point of interest, Ally just dropped it's savings rate from 1.9% to 1.8%. My credit union pays 1.9% on their LTD account with a minimum of $25k and only one withdrawal a month allowed (DCU). I would expect that if Ally is dropping its rate, everyone else is going to follow suit.
You meant 2.4% for Redneck, right?

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Wiggums
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Re: [Need help - Safe place to put $125k?]

Post by Wiggums » Thu Oct 10, 2019 6:36 am

2.4% is correct.

And

redneck rewards checkin' account
Get a high yield — up to 3.00% APY* — with our Redneck Rewards® checkin' account. There’s no minimum balance required, and we include a Redneck Bank VISA debit card for secure purchases and access to ATMs worldwide.

Effective 10-22-19 the Redneck Rewards® checking account will offer 2.75% APY*.

Morik
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Re: Need help

Post by Morik » Thu Oct 10, 2019 8:29 am

6d1v7x3 wrote:
Thu Oct 10, 2019 6:23 am
Morik wrote:
Thu Oct 10, 2019 6:16 am
If you look on bankrates.com or similar sites they will list the current interest rates at a veriety of banks.

You can also find CDs listed on that site and similar sites.

Right now vio has one of the highest rates I'm aware of (2.42%). CFG has 2.5%.
For someone unused to online banking I'd probably stick with a well known, easy to use bank though. E.g., Ally has a 1.9% rate (they may have just lowered to 1.8%?). I've heard popular direct (2.3%) is good too, but have no personal experience using them.
Ally is easy to use, good customer service.
I'd be helping him out so online access is no problem. Do you have experience with Vio or CFG?
I don't, but a in the process of opening a Vio account. So far it has been easy, just give routing and account number of funding account, wait for test deposits (I'm in this phase), use link in email from Vio to verify the deposit amounts, then the account will be funded. If I remember I can let you know how I find their interface once my account is funded, which should be early next week.

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6d1v7x3
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Re: Need help

Post by 6d1v7x3 » Thu Oct 10, 2019 8:54 am

Grt2bOutdoors wrote:
Wed Oct 09, 2019 9:53 pm
6d1v7x3 wrote:
Wed Oct 09, 2019 9:48 pm
He gets $1,300 from social security plus on average he uses another $1200 per month from his savings. He thought that by putting about $50,000 in a Vanguard account of some kind he could make money on his savings. Is that not a good idea?
Bad, bad idea. At the rate your friend is going be he’s going to be out of money in about 8.5 years. Can he get a part time job to bring in some money to delay depletion of the account? He can not afford to take any sort of risk with this being the entirety of his nest egg. The only investment I could suggest would be an FDIC insured certificate of deposit and the best yields would be in the 2 to 2.5% range annually.
He thinks he can get part time work where he'll be able to sit. Why is it such a bad idea to put some money in a mutual fund or something similar?

Morik
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Re: Need help

Post by Morik » Thu Oct 10, 2019 9:15 am

6d1v7x3 wrote:
Thu Oct 10, 2019 8:54 am
Grt2bOutdoors wrote:
Wed Oct 09, 2019 9:53 pm
6d1v7x3 wrote:
Wed Oct 09, 2019 9:48 pm
He gets $1,300 from social security plus on average he uses another $1200 per month from his savings. He thought that by putting about $50,000 in a Vanguard account of some kind he could make money on his savings. Is that not a good idea?
Bad, bad idea. At the rate your friend is going be he’s going to be out of money in about 8.5 years. Can he get a part time job to bring in some money to delay depletion of the account? He can not afford to take any sort of risk with this being the entirety of his nest egg. The only investment I could suggest would be an FDIC insured certificate of deposit and the best yields would be in the 2 to 2.5% range annually.
He thinks he can get part time work where he'll be able to sit. Why is it such a bad idea to put some money in a mutual fund or something similar?
The issue is that investments have risks. If he puts $50k in, say, the total stock market index, and then stocks crash and that $50k is now $35k or $40k, that won't be a good situation for him.
If his assets were larger compared to how much he needs to draw from them each year, he could afford to take some risks. In the current situation though, investments in risky assets have a reasonable chance to end up dropping his total portfolio even lower.

dbr
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Re: Need help

Post by dbr » Thu Oct 10, 2019 9:47 am

6d1v7x3 wrote:
Wed Oct 09, 2019 9:48 pm
He gets $1,300 from social security plus on average he uses another $1200 per month from his savings. He thought that by putting about $50,000 in a Vanguard account of some kind he could make money on his savings. Is that not a good idea?
No, it's a bad idea with exception of using a money market fund.

Others have commented that at $1200/month the money will be gone in about ten years.

A possibility that may or may not be a good idea is to buy a single premium immediate annuity with the $50,000. Right now that would get about $300/month for life. That is an increase from $1300 to $1600 for now. It wouldn't be inflation adjusted. It does generate income (not return) at a payout of about 7% on the money. For people living on the edge and not having a lot in savings it is not necessarily a good idea to give up savings needed for things that happen if favor of an annuity. He would still have $70,000 in reserve and an annuity might be the best solution for income in such a case. This is intended for thought and not a recommendation either way.

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ruralavalon
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Re: [Need help - Safe place to put $125k?]

Post by ruralavalon » Thu Oct 10, 2019 11:11 am

6d1v7x3 wrote:
Thu Oct 10, 2019 8:54 am
He thinks he can get part time work where he'll be able to sit. Why is it such a bad idea to put some money in a mutual fund or something similar?
Part-time work would be a very good idea if practical.

Your friend does not have enough money to be risking any on an investment in a stock mutual fund, the risk of loss is too great in my opinion.

And returns on safer investments, like savings accounts or bond mutual funds, will almost certainly not be high enough to supply your friend's spending needs.

What is your friend's age? What state does your friend live in?

To follow up on the possibility of using a Single Premium Immediate Annuity (SPIA), your friend can look at possible rates here: https://www.immediateannuities.com/info ... tep-1.html
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
6d1v7x3
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Re: [Need help - Safe place to put $125k?]

Post by 6d1v7x3 » Fri Oct 11, 2019 12:42 am

ruralavalon wrote:
Thu Oct 10, 2019 11:11 am
6d1v7x3 wrote:
Thu Oct 10, 2019 8:54 am
He thinks he can get part time work where he'll be able to sit. Why is it such a bad idea to put some money in a mutual fund or something similar?
Part-time work would be a very good idea if practical.

Your friend does not have enough money to be risking any on an investment in a stock mutual fund, the risk of loss is too great in my opinion.

And returns on safer investments, like savings accounts or bond mutual funds, will almost certainly not be high enough to supply your friend's spending needs.

What is your friend's age? What state does your friend live in?

To follow up on the possibility of using a Single Premium Immediate Annuity (SPIA), your friend can look at possible rates here: https://www.immediateannuities.com/info ... tep-1.html
He's in his late sixties and lives in California. We are very confused by all of this stuff to be honest. Does anyone have a short and simple answer in terms of being able to store the money safely and with the best interest rates for two years? I've heard people mention different savings accounts, CDs, and other types of things such as the aforementioned SPIA. Can anyone tell me which one to go with specifically? I mean like a specific bank or product? Thank you so much for your help.

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JD Leonard
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Re: [Need help - Safe place to put $125k?]

Post by JD Leonard » Fri Oct 11, 2019 1:14 am

My best advice is to not rush into any decision. There's no rush. Take some time to research the topics being mentioned here and to ask more questions.

It sounds like this person may not be particularly computer literate. There could be significant value for them in banking in person at a brick and mortar (will they always have you to rely on?). Perhaps there is a local credit union that offers reasonable rates.
- JD Leonard

dbr
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Re: [Need help - Safe place to put $125k?]

Post by dbr » Fri Oct 11, 2019 7:50 am

6d1v7x3 wrote:
Fri Oct 11, 2019 12:42 am
He's in his late sixties and lives in California. We are very confused by all of this stuff to be honest. Does anyone have a short and simple answer in terms of being able to store the money safely and with the best interest rates for two years? I've heard people mention different savings accounts, CDs, and other types of things such as the aforementioned SPIA. Can anyone tell me which one to go with specifically? I mean like a specific bank or product? Thank you so much for your help.
If you specify a condition that one get the best interest rates then there is not a short and simple prescription. A person has to investigate available interest rates and terms and conditions, which are constantly changing. The best rates will usually involve using an online bank either located in some distant location or not even having brick and mortar branches. The best rate might be a money market fund at a broker, needing a brokerage account. Getting best rates will also involve constant management to move money from one opportunity to another.

I would tend to agree with the post previous to this by JD Leonard that a savings account and/or CDs at a local bank that offers easy access and simple transactions mediated by a person would be more helpful than worrying about getting the best interest rates. At this time and for the immediately foreseeable future interest rates on cash are not going to be very high anywhere.

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ruralavalon
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Re: [Need help - Safe place to put $125k?]

Post by ruralavalon » Fri Oct 11, 2019 10:16 am

6d1v7x3 wrote:
Fri Oct 11, 2019 12:42 am
ruralavalon wrote:
Thu Oct 10, 2019 11:11 am
6d1v7x3 wrote:
Thu Oct 10, 2019 8:54 am
He thinks he can get part time work where he'll be able to sit. Why is it such a bad idea to put some money in a mutual fund or something similar?
Part-time work would be a very good idea if practical.

Your friend does not have enough money to be risking any on an investment in a stock mutual fund, the risk of loss is too great in my opinion.

And returns on safer investments, like savings accounts or bond mutual funds, will almost certainly not be high enough to supply your friend's spending needs.

What is your friend's age? What state does your friend live in?

To follow up on the possibility of using a Single Premium Immediate Annuity (SPIA), your friend can look at possible rates here: https://www.immediateannuities.com/info ... tep-1.html
He's in his late sixties and lives in California. We are very confused by all of this stuff to be honest. Does anyone have a short and simple answer in terms of being able to store the money safely and with the best interest rates for two years? I've heard people mention different savings accounts, CDs, and other types of things such as the aforementioned SPIA. Can anyone tell me which one to go with specifically? I mean like a specific bank or product? Thank you so much for your help.
Can you be more precise than "late sixties"? It makes a difference when looking at a SPIA.

Your friend can look for best available bank account interest rates here:

https://www.bankrate.com/cd.aspx

https://www.depositaccounts.com/cd/

Or a local bank or credit union may be more convenient.

Or a money market fund might be a better idea, like Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 1.97%.

I can't make this decision for your friend, your friend has to decide what is best for him.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Morik
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Re: Need help

Post by Morik » Thu Oct 17, 2019 4:37 pm

Morik wrote:
Thu Oct 10, 2019 8:29 am
6d1v7x3 wrote:
Thu Oct 10, 2019 6:23 am
Morik wrote:
Thu Oct 10, 2019 6:16 am
If you look on bankrates.com or similar sites they will list the current interest rates at a veriety of banks.

You can also find CDs listed on that site and similar sites.

Right now vio has one of the highest rates I'm aware of (2.42%). CFG has 2.5%.
For someone unused to online banking I'd probably stick with a well known, easy to use bank though. E.g., Ally has a 1.9% rate (they may have just lowered to 1.8%?). I've heard popular direct (2.3%) is good too, but have no personal experience using them.
Ally is easy to use, good customer service.
I'd be helping him out so online access is no problem. Do you have experience with Vio or CFG?
I don't, but a in the process of opening a Vio account. So far it has been easy, just give routing and account number of funding account, wait for test deposits (I'm in this phase), use link in email from Vio to verify the deposit amounts, then the account will be funded. If I remember I can let you know how I find their interface once my account is funded, which should be early next week.

I've now opened the Vio account & funded it.

Initial impressions/notes:
- Website is not as nice as Ally's, but is usable.
- They don't put your account # anywhere. You have to contact them to get the full #, or refer to the email they send you when you first open the account.
- Be aware they have a $5k/day, $20k/month transfer limit, but this only applies to transfers initiated from their side. I.e., if you have an account at another bank that has higher limits, you can use that bank to transfer more than that. E.g., I have my Ally account still, with much higher daily & monthly transfer limits, and can use that to get > $5k/$20k out at once.
- Be aware they have a 'dormant account' fee. If you have no transactions within 12 months, they start charging $5/month.

Overall I'm not particularly pleased with their transfer limits & their website functionality, but the interest rate is good enough to get me to stay for now.

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