Where To Invest Extra Cash and Savings Today

by Jacques Sprenger on 2009-11-0211

Have you got some extra cash you’ve squirreled away, waiting to be put to good use? If you’ve got your debt paid down and your emergency fund taken care of, and you’re fortunate enough to have additional disposable income or a windfall to work with, then here are a few ideas about where to put that cash.

Savings account rates are not exactly where we want them right now. Even a great savings account these days is yielding relatively lower returns; Bankrate surveys show that the best cd rates aren’t too exciting, with the average yield for a three-month CD lingering at 0.86 percent. There is an understandable fear to invest in stocks and the mattress is no longer an acceptable option (has it ever been?). How can one obtain some decent returns in this close to zero prime rate environment?

Where To Invest Extra Cash and Savings Today

1. Invest In A Checking Account

Recently, I discovered quite by accident, a regional high yield checking account (also known as a rewards checking account) that was returning up to 4.25% APY if certain qualifications are met. For example, the bank asks that you:

  • Have no more than $25,000 in the account to earn that interest rate (.95% will be paid on any amount above that limit).
  • Make a minimum of 10 debit card purchases per month. ATM withdrawals do not count.
  • Sign in to your online account at least once a month.
  • Manage your account electronically. The bank won’t be sending out paper statements with everything done electronically.

The great aspects of this offer are that it requires no minimum balance, and offers a free ATM and debit card, FDIC insurance, $500 overdraft privilege and free online banking. If you don’t comply with the requirements, your APY drops precipitously to 0.10 %. For more details, check out CheckingFinder.com.

where to invest
Image from ColoradoEnergyNews.com

2. Consider The Stock Market Carefully

If you don’t feel comfortable about opening a free high yield checking account in a distant bank, there are still other options. You could look into investing in the stock market in a prudent fashion. If you haven’t done so already, open an account with an online broker and consider investing in index funds.

For instance, popular personal finance guru, Suze Orman, recommends a couple of great index funds: the Vanguard Total Stock Market ETF (VTI) or its mutual fund cousin, Vanguard Total Stock Market Index Fund (VTSMX). These highly diversified funds can represent the core of any long term investor’s portfolio. Of course, invest only what you don’t need for an emergency and be prepared to wait (patiently) for solid returns on your investments.

3. Increase Your 401K Contributions

How to become a millionaire? You can become one over time, by increasing the savings in your 401K. If you increase your savings rate by just a couple more percentage points, you may achieve your savings goals and grow your nest egg much more quickly. Check out the lessons from this CNN Money article:

Say you’re 30, make $70,000 a year and contribute 10% of your pay, which grows 3% annually. If your 401(k) investments earn 7% a year, you’d have about $1.4 million by 65. Not bad. But if you increased your savings rate by just two percentage points, to 12%, you could have a nest egg of $1.7 million. Boost it to 15% and you’d have more than $2.1 million.

4. Cash In On The Wind

invest extra cash, savings
Image from TreeHugger

If you’re willing to “gamble” just a little, and you’re comfortable about putting your money into a more concentrated stock play, then consider investing in the future based on the trends. In particular, you may have heard President Obama placing great emphasis and federal money on three areas: health, education and energy. So what about betting on “Obama” stocks? As this article suggests: His plan to spend $150 billion over 10 years on alternative energy bodes well for funds like PowerShares WilderHill Clean Energy Portfolio (symbol PBW) and Market Vectors Global Alternative Energy (GEX). Again, this money must be set aside for a minimum of 5 years, unless these companies tank all of a sudden due to mismanagement. Just don’t forget about them completely; make sure you keep track of how your investments are doing. Also, if you go this route, don’t rely on these funds to pay for your short or near term financial goals, though if luck is on your side, these investments may very well pay for your kids’ college education.

Break (Out) the Piggy Bank

Having money sitting in a very low yielding account in your local bank is a total waste. If you are under 40, it’s downright “criminal”, since you can afford to take some risks. If you are over 50, some of these options are still very attractive and very safe. So smash your piggy banks and start making some much needed capital!

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 11 comments… read them below or add one }

John DeFlumeri Jr November 2, 2009 at 9:33 pm

That’s a full menu to choose from. Good work on this article!

TheDebtHawk.com November 3, 2009 at 4:43 am

The high interest checking accounts are interesting. I will be interested to see whether these banks lower these interest rates.

basicmoneytips November 3, 2009 at 5:52 am

There are some stocks that are still relatively cheap out there, especially some of the bank stocks. If you have an online brokerage account like Sharetrader or Etrade, it may be worthwhile to throw a little money in the market. You could make a lot more than 3% a year, but you have to be willing to accept a little more risk of course.

Rob Bennett November 3, 2009 at 5:53 am

Savings account rates are not exactly where we want them right now.

I of course understand the point being made here. But I do not entirely agree.

We are living in an exceedingly strange time re investing. The old model of how to invest (Passive Investing) has been discredited. But it has not yet been replaced. The most dangerous choice of all (in my view!) is to go with the discredited-but-still-conventional wisdom. But many also see danger in going with the new model (I call this Rational Investing) because it has not yet been studied by lots of people or endorsed by lots of experts. These are legitimate concerns.

In these circumstances, I think that any choice that leaves the investor with something other than a negative return can be viewed favorably. In the event that we see another stock crash within the next few years, the most likely long-term return on stocks will be going up to 15 percent real per year. If you earn zero percent on your money for three years and then 15 percent for 10 years, is that so bad? That seems more appealing to me than earning a return a bit higher than zero for a few years and then suffering a big loss in the time before the really juicy long-term returns that will be available after the next stock crash open up to us.

I don’t say that cash is for everyone today. I do say that it has a lot more appeal than most see in it. I see cash as a not-bad but not entirely compelling choice today. I’d say the same thing about stocks. I see those two asset classes as offering roughly similar long-term value propositions today (I would give a small edge today to cash).


Lawrence November 4, 2009 at 3:54 am

I’ve recently done quite a bit of reading on high interest rate internet checking accounts and even high yield overseas investment accounts. There are some hoops to jump through but… it looks like Brazil might be a good option.

Internet Marketing Mentor November 5, 2009 at 4:39 am

Is it really smart to put all of your saving into your 401K account? Just look at what happened this past and still present recession. I would invest wisely into small business, just remember that if a offer looks too good to be true, it usually is.

Silicon Valley Blogger November 5, 2009 at 8:31 am

@Internet Marketing Mentor,
Most people are NOT cut out to be entrepreneurs, so no, I would not recommend putting money in a small business, unless you’ve got a LOT of extra cash, which again, most people don’t have. I would still believe it is smartest to put money in a diversified portfolio of assets that fits your age, risk profile and desired financial goals.

Anyone can invest with only $100 a month. Most of the time, that’s simply not enough to launch a small business. Also, it’s much more convenient and straightforward to invest $100 in regular investments and a 401K or IRA than a small business.

Dormye November 16, 2009 at 1:52 pm

Thanks for the good information. I think sometimes we forget the common sense approaches to our money situations.

Warren November 21, 2009 at 9:38 am

Your suggestions are very good and systematic approaches to save and invest money. This will make you money in the long run. Short term investments such as Forex are very risky to use to plan ahead or to depend on for your retirement.

greg merrifield September 8, 2010 at 1:45 pm

I have about $3,700 in disposable income right now. Job is going wonderful and was wanting to know where i could invest this money right now.

Silicon Valley Blogger September 8, 2010 at 5:51 pm

I tend to be a conservative investor. So I would first put that money in a cash account to build an emergency fund. Things may be great now, but it may not be great all the time, so it’s important to have an emergency cash account to fall back on. That should be equivalent to 6 months to a year’s worth of income — at least, that’s my take on it. But if you already have such a fund and are now wondering what next — Or where to invest additional money — then I would look into index funds, which you can buy from an online broker (see this list) or mutual fund company. Or do as I did — I started a business with a very minimal investment involved.

It usually takes more to invest in something like real estate, so if you’re interested in investing in properties, you’ll have to save up a larger amount to go down this path. Unless you’re open to investing into REITs. Other possibilities? You can also try bonds, but they have lower returns for less risk.

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