CD, Savings Account or Money Market? Advice on financial planning! HELP!?

2009-05-18 12:35:03 UTC

Your first question, you will want a savings account.

Second question, you may look into a money market account that will yield a bit more than a savings account.

Third, have your former 401 (k) administrator roll the 401 (k) into a Rollover IRA with a brokerage such a T. Rowe Price. From there, you can transfer it into a Roth or traditional IRA.

http://individual.troweprice.com/public/Retail/Retirement/Rollover-IRA?adcode=1637

Steve

2009-05-18 09:34:58 UTC

To answer your first question, I'd probably stick with a bank savings or money market account for your short-term savings. Most online banks such as ING Direct, HSBC, E-Trade, Capital One, etc. have similar rate structures with no minimum balance requirement and no monthly fees. Check each of those and if the difference isn't too much, you may just consider keeping your HSBC account to make things simple. Put as much of your current savings into that account to maximize your money. One bit of caution though - keep a savings account with a couple hundred dollars in it for overdraft protection at the bank where your checking account is held. This way, should you make a mistake and overdraft, it will just pull from the savings. You'll avoid expensive overdraft fees that way.

As for your second question, it's generally better to rollover your old 401k into an IRA. You have so many more investment options with the IRA. The only question is whether to invest in a Traditional IRA or a Roth IRA. The Traditional IRA is structured much like your 401k - you haven't paid taxes on that money yet. So that would be the easiest option. Upon withdrawal, you'll owe taxes on your distributions just like your 401k. However, you do have the option of rolling it into a Roth IRA. The downside is that you'll have to pay income taxes on that money this year. So, if you rollover $10,000 and are in the 15% tax bracket, you'll owe an additional $1500 on your taxes (or your refund will be reduced by that amount). The advantage is that money will grow tax free until you take it out (after 59 1/2 years old anyway). If you're expecting future tax rates to be higher than they are now, then this could save you some money.

I hope this helps.

?

2016-05-25 12:16:19 UTC

RULE #1 OF INVESTING: NEVER PUT YOUR MONEY INTO ANYTHING THAT YOU DON'T UNDERSTAND 100% You need a professional for something this big. But, if you're asking for free advice on Y!A, then here it goes: You are saving money, not investing it. An investment is when you leave the money alone for 7-10 years. Therefore, stocks are out. Real estate is also out, because the only way to pull 20% each year is to get a home equity loan. Finance 101 - ALL investments pay the same amount, once you adjust for risk. Low risk = Low return. High risk = High return. You might make 10%-20%, but you might lose that much too. Or, you can take the safe route and get your 2-3% in a CD. IndyMac made a lot of headlines when it closed last Friday. But there weren't nearly as many headlines written about the people who went to the bank the Monday after that and withdrew their money as if nothing happened. That's FDIC insurance at work. If you have less than $100,000 in an account, your account is 100% insured. Here's what I would do: 1) If you have any debts, use the $170,000 to pay them off. No sense having a pile of cash laying around while you have debts accumulating interest. 2) Assuming you don't have any debts, the $170,000 should be divided up in laddered CDs. The first 10% goes into a savings account. The next 10% goes into a 6 month CD. The next 10% goes into a 12 month CD The next 10% goes into a 18 month CD. Etc. Now, the last 10-20% could go into something a little riskier. But this is the money to pay for the last year of school. You don't want an investment to go bad, and find yourself with no money and 6 credits short of your degree. -------------- BTW, do you have any plans to get a part time job while in school?

?

2009-05-18 09:37:19 UTC

The type of savings account is based on your needs. If you need easy access to the cash, such as in an emergency fund, you should use a standard savings account. The rates are not good, but it is FDIC insured and accessible at any time.

Normally I would encourage a money market fund or savings/money market combination. While MMs are not FDIC ensured, they are 100% funded. Meaning for every dollar you put in, there is a dollar that is actually in the fund (as opposed to a bank, where they may only have 10% of actual cash for every dollar deposited). However, right now the rates on MMs are not very good, even though they are very safe investments So you may be able to find a better rate at a savings account. Also, don't be afraid to shop around for a better savings rate.

Once you have a funded emergency fund, you can leave that account alone. For the moving out process, if it is about a year away, you should invest in a CD. Your money will be locked away, but it will earn better interest than a savings account, and it is also FDIC insured.

For your retirement you should continue investing in an IRA (either ROTH or standard, depending on your income levels). For your IRA account, I suggest a target retirement account, that has a investment policy geared towards the year your retire. Check out IRAs and other information at discount brokers such as Vanguard.

2009-05-18 10:51:00 UTC

1. The interest rate for emergency funds doesn't really matter. If you have a checking account already and are okay with online banking, you might try INGDirect.com Orange Savings account. (It is basically a money market account without all the hassle) Another good option for savings is a credit union, if you have access to one.

2. Same deal. Money that you might need at a moments notice (emergency fund) or in the near future (less than 5 years) should be saved not invested. The risk of losing some of the total isn't worth the moderately larger monthly/yearly return. With small amounts of money ("small" to the world of investing is less than $100,000), your three basic options are 1 year CDs, money market accounts, and savings accounts. The returns will usually be similar and the will always be "low" relative to risker options. You can review options on bankrate.com to see if the rates your banks has are reasonable to other similar companies in your area.

2b. Sidenote. TreasuryDirect.gov / I-Series Savings bonds are also an option for savings that you don't think you will need for at least a year and most likely not for 5 years. They aren't very complicated, but their use isn't very practical for your current needs.

3. Always do a Direct Rollover to a Traditional IRA. Easy and cheap. Depending upon how they are currently invested, they can even be consolidated.

For accounts/totals of at least $10,000 I recommend Vanguard.com investing in the Target Retirement Fund for your age bracket -- set it and forget it. Vanguard is a good choice in general, although they do charge some (small) fees for smaller accounts. They will always beat your local bank for an IRA, but for small dollars you may have some other options online.

You can save an up to an additional $5000 every year in an non-rollover IRA, a traditional (tax benefits now if you don't have a 401k option at work) or a ROTH (no tax benefit now, but withdrawals are tax free in retirement). (assuming you make less than $100,000 per year)

cc88

2009-05-18 09:30:08 UTC

I think you need to go to the bank and talk to a financial adviser.. they are there for this specific kind of thing. A CD may be a good option because there are typically penalties for and early withdrawal from the account.. so that might force you to keep the money in there.. but if an emergency should arise.. you want your money liquid. I am certainly no financial adviser.. so I suggest you talk to one... their job is to help you with this exact situation.. good luck.