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Purchased Money Funds vs CD vs Savings Accounts

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  •  RosieQ 
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    Status: Physician
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    Joined: 06/03/2017

    I have a growing pile of cash that I am accumulating for a home downpayment. I also regularly have tens of thousands of dollars at a time being saved to pay estimated quarterly tax payments for a cash allocation well into the 6 figures at this time. I currently stash all of this with Ally Bank for a 2% annual yield. I have recently become aware of a number of purchased money funds available through my employer 401k, my wife’s, and through Schwab which I use for most of my personal investing. Schwab has a higher 7-day yield of 2.13%, plus some other interesting products such as a muni fund (Federal 1.41%, California exempt 1.34%).

    This is a modest benefit in return, but I would get extra benefits through Schwab including some credit card and mortgage perks that add to the overall return, plus fewer logins keeping my money in one place.

    Any major benefits or drawbacks to these types of funds that I should be aware of? There is a No Penalty CD through Ally that returns 2.25% that might be an even better option as well.

    https://www.schwab.com/public/schwab/investing/accounts_products/investment/money_markets_funds/purchased_money_funds

    https://www.ally.com/bank/cd-rates/

    #171637 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6148
    Joined: 01/09/2016

    The no-penalty CD at 2.25% sounds pretty good to me. What is the timeline for buying your home? You might look into some high-quality corporate bonds to stash the downpayment.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #171641 Reply
     RosieQ 
    Participant
    Status: Physician
    Posts: 141
    Joined: 06/03/2017

    We will start building in July 2019, likely with ongoing expenses for 1-2 years after that point.

    #171643 Reply
    jfoxcpacfp jfoxcpacfp 
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    Probably not worth looking for anything beyond the 2.25%, then, or check Schwab’s corporate bond rates for bonds maturing next 3 July’s. I am not comfortable with muni bond funds, but that’s just me.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #171644 Reply
     jz 
    Participant
    Status: Physician
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    Joined: 01/09/2016

    for your short term needs, these are all fine.  Use munis if you are in a high tax bracket. If you are interested in treasuries, consider bypassing Schwab, and going directly to treasurydirect.com.  4 week treasury bills are currently paying 2.234%, and you pay no state taxes on treasuries.

    #171709 Reply
    Liked by Zaphod
     jz 
    Participant
    Status: Physician
    Posts: 581
    Joined: 01/09/2016

    for your short term needs, these are all fine. Use munis if you are in a high tax bracket. If you are interested in treasuries, consider bypassing Schwab, and going directly to treasurydirect.com. 4 week treasury bills are currently paying 2.234%, and you pay no state taxes on treasuries.

    #171710 Reply
    Zaphod Zaphod 
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    Status: Physician, Small Business Owner
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    for your short term needs, these are all fine. Use munis if you are in a high tax bracket. If you are interested in treasuries, consider bypassing Schwab, and going directly to treasurydirect.com. 4 week treasury bills are currently paying 2.234%, and you pay no state taxes on treasuries.

    Click to expand…

    came here to point this out.

    #171727 Reply
     RosieQ 
    Participant
    Status: Physician
    Posts: 141
    Joined: 06/03/2017

    Just found out that Fidelity has an “Auto Roll” feature to automatically re-invest Treasuries or other similar products after their expiration at the next available opportunity. Would be nice is Schwab offered something similar. Is this something that you would recommend that I just put on the calendar and place a new market order for the next batch of Treasuries every month?

    #171892 Reply
     LucyGI 
    Participant
    Status: Physician
    Posts: 13
    Joined: 11/21/2018

    Sorry for the basic question, but what would be the difference between the No Penalty CD through Ally  versus a  high interest savings account?

    thanks

     

     

    #171909 Reply
     jz 
    Participant
    Status: Physician
    Posts: 581
    Joined: 01/09/2016

    Just found out that Fidelity has an “Auto Roll” feature to automatically re-invest Treasuries ……….

    Treasurydirect.com offers the same feature.  You can reinvest principal and/or interest for up to 24 months.

    #171911 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016

    Sorry for the basic question, but what would be the difference between the No Penalty CD through Ally  versus a  high interest savings account?

    thanks

    Click to expand…

    Not anything, really, except the rate and whether you can have as many transactions with the CD. If the rates are the same, I’d go with the high-int savings account. The CD will prob have more restrictions, but CDs typically have higher rates than savings accounts.

    Perhaps someone who has purchased the NP CD can answer.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #172044 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    CD’s don’t have transactions allowed. NP means you cash it out and repurchase. Minimums and denominations apply. Rates are fixed usually.
    The new CD will have a new rate at the time.

    Savings have limits on number of transactions, interest is most likely variable. Some have minimums. No denominations, just new balance.

    #172062 Reply
     LucyGI 
    Participant
    Status: Physician
    Posts: 13
    Joined: 11/21/2018

    thank you

    #172122 Reply

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