Return on short-term cash needs/emergency funds

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Topic Author
sman09
Posts: 334
Joined: Fri Mar 23, 2018 12:02 am

Return on short-term cash needs/emergency funds

Post by sman09 »

Given that the best return from online bank accounts is only about 0.6% as seen from this page: https://www.bankrate.com/banking/savings/rates/, am I doing the right thing of parking my money in M1Finance's Spend account which pays 1% return?

I have my taxable & Roth IRA account with them - invest in VTI (in taxable) and in VOO (in Roth IRA - Contributed for first time this April). My thought process is if suppose there is an opportunity in the future, such as the one from March 2020, I could quickly transfer the money from the Spend account to my Invest account.

I have for now parked cash savings more than emergency needs with M1. Are there better safe investing options i should be using?

Thank you for your inputs.
Last edited by sman09 on Mon Jul 19, 2021 10:12 am, edited 1 time in total.
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anon_investor
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Re: Return on short-term cash needs/emergency funds

Post by anon_investor »

sman09 wrote: Sun Jul 18, 2021 6:48 pm Given that the best return from online bank accounts is only about 0.6% as seen from this page: https://www.bankrate.com/banking/savings/rates/, am I doing the right thing of parking my money in M1Finance's Spend account which pays 1% return?

I have my taxable account with them - invest in VTI and in VOO (in Roth IRA - Contributed for first time this April). My thought process is if suppose there is an opportnity in the future, such as the one from March 2020, I could quickly transfer the money from the Spend account to my Invest account. I have for now parked cash savings more than emergency needs with M1.

Are there better safe investing options i should be using? Thank you.
Is that 1% account FDIC insured or some kind of money market account?
Topic Author
sman09
Posts: 334
Joined: Fri Mar 23, 2018 12:02 am

Re: Return on short-term cash needs/emergency funds

Post by sman09 »

Per the information available on M1Finance website it is FDIC insured up to $250,000
M1 Spend will be an FDIC-insured checking account as the money in the account will be held with Lincoln Savings Bank, Member FDIC. This checking account structure gives you insurance protection up to $250,000 and the most flexibility in transacting through your account (as savings accounts have limits on the number of monthly transactions).
Source: https://www.m1finance.com/blog/m1-spend/

We are used to having the money in our bank account all these years and so even earning 1% (before tax) seemed like a good deal. But in case there were better options - which are also safe (by safe i refer to from market fluctuations), wanted to hear about them.

Thank you.
patrick
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Location: Mega-City One

Re: Return on short-term cash needs/emergency funds

Post by patrick »

It looks like the M1 account has an annual fee to get that interest rate. Nonetheless, you cam get a no-fee federally insured account paying 1% elsewhere, and much higher with some restrictions:

1% with no limit - T-Mobile Money

2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions per month but bill pays qualify

3% on the first $100,000 - HMBradley, requires saving 20% of deposits each quarter (i.e. total withdrawals no more than 80% of total deposits) and a monthly direct deposit of payroll or benefits.

3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate, but sending from another one of your accounts qualifies.

3% with no hard limit - One Finance, deposits into the 3% account are limited to 10% of your direct deposits (max $1,000 per month) and the rest only gets 1%, but the rest could be spent or withdrawn

3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month

6.17% on the first $1,000 - Digital Credit Union
HomeStretch
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Re: Return on short-term cash needs/emergency funds

Post by HomeStretch »

Depending on the size of and how you use your emergency fund, consider whether I-Bonds might be appropriate for a portion of your emergency fund. The current rate on newly issued bonds is 3.54%, the rate is adjusted every 6 months. The bonds are Federal tax deferred, state tax free, and inflation protection. You cannot sell for 1 year, there is a 3-month interest penalty if sold in first 5 years.
wriley4409
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Location: Little Rock,AR

Re: Return on short-term cash needs/emergency funds

Post by wriley4409 »

HomeStretch wrote: Mon Jul 19, 2021 12:22 pm Depending on the size of and how you use your emergency fund, consider whether I-Bonds might be appropriate for a portion of your emergency fund. The current rate on newly issued bonds is 3.54%, the rate is adjusted every 6 months. The bonds are Federal tax deferred, state tax free, and inflation protection. You cannot sell for 1 year, there is a 3-month interest penalty if sold in first 5 years.
+1

I have been buying $10,000 worth of I-Bonds annually for a few years, and am very contented with the return. FWIW, I use a three tiered approach with the first bucket in a rewards checking account, the next bucket is in a savings account at an online bank, with the third (and largest) bucket being my portfolio of I-Bonds.
Topic Author
sman09
Posts: 334
Joined: Fri Mar 23, 2018 12:02 am

Re: Return on short-term cash needs/emergency funds

Post by sman09 »

patrick wrote: Mon Jul 19, 2021 11:57 am

1% with no limit - T-Mobile Money

2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions per month but bill pays qualify

3% on the first $100,000 - HMBradley, requires saving 20% of deposits each quarter (i.e. total withdrawals no more than 80% of total deposits) and a monthly direct deposit of payroll or benefits.

3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate, but sending from another one of your accounts qualifies.

3% with no hard limit - One Finance, deposits into the 3% account are limited to 10% of your direct deposits (max $1,000 per month) and the rest only gets 1%, but the rest could be spent or withdrawn

3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month

6.17% on the first $1,000 - Digital Credit Union
Thank you patrick for these details. I will look up more to see if I may be eligible for some of these high interest accounts.
HomeStretch wrote: Mon Jul 19, 2021 12:22 pm Depending on the size of and how you use your emergency fund, consider whether I-Bonds might be appropriate for a portion of your emergency fund. The current rate on newly issued bonds is 3.54%, the rate is adjusted every 6 months. The bonds are Federal tax deferred, state tax free, and inflation protection. You cannot sell for 1 year, there is a 3-month interest penalty if sold in first 5 years.
Thank you for the information HomeStretch.

I was not aware I-Bonds interest is that high. Seeing the discussions here often refer to 0 % returns on bonds i did not care to look further in quite some time.

wriley4409 wrote: Mon Jul 19, 2021 12:30 pm
I have been buying $10,000 worth of I-Bonds annually for a few years, and am very contented with the return. FWIW, I use a three tiered approach with the first bucket in a rewards checking account, the next bucket is in a savings account at an online bank, with the third (and largest) bucket being my portfolio of I-Bonds.

Thank you for the information wriley4409. Good to hear about your 3-tier approach.
Topic Author
sman09
Posts: 334
Joined: Fri Mar 23, 2018 12:02 am

Re: Return on short-term cash needs/emergency funds

Post by sman09 »

Thanks for drawing my attention to I-Bonds. I remember reading about them here but seeing reference to using tax refund to purchase thought it may not work for us as we tend to submit returns just before the deadline. Learned only today that purchasing online is also possible.Some queries before we purchase:
  • Is it a good idea to buy I-Bonds in the name of one's children also if they have a SSN apart from in the name of both the parents?
  • Any downsides such as the money in their names being taken into account to assess eligibility for need-based academic aid.
  • Also, if investing in one's children's name is allowed and common, how does the redemption of the money from the account work - should they have their own bank account to which the money will go back to?
  • Could one buy $10,000 of electronic I bonds and $5,000 of paper I-bonds in one's name in the same year?
Finally does it make sense to hold both I and EE bonds and are there situations when neither may be good choices to consider?

Thank you!
dbr
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Re: Return on short-term cash needs/emergency funds

Post by dbr »

sman09 wrote: Mon Jul 19, 2021 10:57 pm
  • Is it a good idea to buy I-Bonds in the name of one's children also if they have a SSN apart from in the name of both the parents?
Unless someone makes a point of paying taxes on the earnings year by year, keep in mind that a child acquiring I bonds between the ages of 10 and 20 will have those bonds redeemed and tax due between the ages of 40 and 50 when their tax rates are highest. I bonds are only good for 30 years.
sycamore
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Re: Return on short-term cash needs/emergency funds

Post by sycamore »

Hello sman09.

General info on I Bonds is in the wiki article: https://www.bogleheads.org/wiki/I_savings_bonds
sman09 wrote: Mon Jul 19, 2021 10:57 pm
  • Is it a good idea to buy I-Bonds in the name of one's children also if they have a SSN apart from in the name of both the parents?
I'm not sure what you mean.

You can buy I Bonds in the name of the child (under age 18 and assuming child has own SSN, not sure why she wouldn't). You can buy I Bonds in one parent's name. You can also buy I Bonds in the other parent's name.

Whether it's a good idea is situation-specific; what are your goals for the I Bonds?
sman09 wrote: Mon Jul 19, 2021 10:57 pm
  • Any downsides such as the money in their names being taken into account to assess eligibility for need-based academic aid.
I have no direct experience with this but I assume it'd be counted on the list of the child's assets and treated in the same way as other assets as far as aid goes.
sman09 wrote: Mon Jul 19, 2021 10:57 pm
  • Also, if investing in one's children's name is allowed and common, how does the redemption of the money from the account work - should they have their own bank account to which the money will go back to?
You might have to check with Treasury Direct on this.
sman09 wrote: Mon Jul 19, 2021 10:57 pm
  • Could one buy $10,000 of electronic I bonds and $5,000 of paper I-bonds in one's name in the same year?
Yes, but I think the $5,000 in paper bonds can only be bought as part of federal income tax refund. So if someone (like a child) doesn't file a tax return, they can't buy paper bonds. Your paper bond amount is limited by the refund amount.
sman09 wrote: Mon Jul 19, 2021 10:57 pm Finally does it make sense to hold both I and EE bonds and are there situations when neither may be good choices to consider?
It can make sense to hold both; it's situation-specific. Obviously, you'll want to know about the restrictions of EE and I bonds.

If you highly value simplicity (want to minimize accounts); and you already have a bank and brokerage account; and you feel the advantages of EE and I Bonds are only "meh"; then you might find it's a bad idea to hold EE and/or I bonds at Treasury Direct.
Raspberry-503
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Re: Return on short-term cash needs/emergency funds

Post by Raspberry-503 »

If you have trust you can also buy $10K in the trust. 2 adults and a trust gets you $30K a year without overpaying on taxes for the $5K paper bonds.
Do remember they can't be redeemed for the first year so keep some emergency cash in a more liquid asset for the first year.
Buffetologist
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Re: Return on short-term cash needs/emergency funds

Post by Buffetologist »

How do you get an additional Treasury Direct trust account if the trust has the same tax id as my SSN? Isn't it 10K per SSN?
HomeStretch
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Re: Return on short-term cash needs/emergency funds

Post by HomeStretch »

Buffetologist wrote: Tue Jul 20, 2021 8:51 am How do you get an additional Treasury Direct trust account if the trust has the same tax id as my SSN? Isn't it 10K per SSN?
I opened a TD Entity account about 2 months ago for my revocable trust using my SS#. No issue with purchasing $10k in my individual TD account and $10k in my TD Entity account in 2021.
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