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Where To Stash Your Savings - Live Like a Mensch
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Live Like a Mensch

Where To Stash Your Savings

 

So many choices of where to stash your cash...

 

A few weeks back, regular reader and commenter frugal_fun asked about where a Dollar Stretcher reader could park their hard-earned savings. You may remember that I have been a long time customer of ING Direct , where J and I keep our medium term savings and emergency fund. Unfortunately, ING was purchased by Capital One last year, and as of February of this year, the friendly orange online bank is no more.

This has alarmed some people, with good reason. ING made its name on being customer-centric, transparent, generous, and lacking in any form of bull hockey. Capital One...can't necessarily say the same. In particular, the fact that Capital One used Orwellian double speak on whether they would be adding fees or minimum balance requirements is pretty troubling.

That being said, I have stuck with the bank after the changeover. This is mostly due to apathy, a busy and stressful winter, and the fact that I haven't seen any changes (good or bad) so far. In point of fact, the only thing that I've genuinely disliked about the purchase of ING is how much longer it takes me to write "Capital One 360" in my check register compared to "ING" when I'm making a transfer. Pretty petty, I know.

However, I am keeping my eyes wide open for any signs of the Capital One barbarians to come a-knocking on my savings accounts, and I'm weighing other options. Here's what I've found:

Ally: I will admit that I already have some warm fuzzies about this bank because of the good experiences I have had with their representatives at the annual Financial Blogger conference. (That, and they offer to-die-for white chocolate fudge covered Oreos at that conference, which is a sure way to my heart.) That being said, I have NO personal experience in banking with Ally. What I have read, however, is that it has a straightforward, no-nonsense approach to banking with competitive interest rates. Ally currently offers 0.84% interest on the no-minimum balance savings accounts (which is definitely better than Capital One 360's 0.75%). While I have read some negative reviews of Ally, for the most part, it seems that customers are pretty satisfied with their Ally experience. If you're looking to open a new online-only savings account (or get away from the specter of Capital One), this is definitely the bank I would recommend to friends, and not just because of their cookies.

Certificate of Deposit: I'm a little less well-versed in CDs than I would like, but this is definitely a financial vehicle I feel like I should explore. Parking your money in a CD means that you are eligible for pretty darn good interest rates, since you will theoretically keep your money in it for the entire term. That does mean that this is NOT the place to put a traditional emergency fund, which you need to keep liquid. However, if you have some medium-term savings that you don't anticipate needing for the term of the CD, placing it there can earn you some money. And, if for some reason you do need to break glass in case of emergency, you can withdraw money from the CD early. You'll only forfeit some portion of the interest you've earned. According to Bankrate, you'll earn about 1% interest on CDs these days.

I-Bonds: Of these three options, this is the one I'm least familiar with. (I have owned a CD in the past which I ended up breaking because of an emergency, natch, and I never went back to one once I had enough money put aside to avoid breaking the next one). However, I have read several articles and reviews which describe I-Bonds as the bee's knees--enough that I have found myself thinking "Huh, I should look into that." The road to a certain location being paved with my good intentions, that has not yet happened. However, I will pass along my thinking to you.

I-Bonds are inflation-indexed U.S. savings bonds. That means you are offered a fixed interest rate for the first six months that you own the I-Bond, which is then recalculated based on inflation every six months thereafter. Right now, I-Bond rates are at 1.76%, which seems pretty scanty, but considering your alternatives, it's about as good as one can expect.

There are a couple of downsides to I-Bonds:

One: you cannot access your cash, not no way not no how, for a year after you have invested, so this is a bad idea if you don't have enough liquid emergency money available.

Two: on the other end of the spectrum, there is a $10,000 purchase limit per person per year, so if you've got more than enough spare cash lying around, you won't be able to take full advantage of this vehicle and will have to find other places to stash and/or invest your money.

Ultimately, J and I will probably stick with Capital One 360 for at least a bit longer, as it's familiar, easy to use, and secure. At some point in the near future, however, we're going to probably look into transferring at least some of our money into a vehicle that will allow us some more growth, considering the fact that a 0.75% interest rate is not even enough for us to take ourselves out to lunch once a year on the interest, even if we don't supersize our meals.

Comments

 

bobi said:

Two things:

1. Re: your check register, I'd go with CO360...only 2 digits longer than ING.

2. Re: CD penalty for early withdrawal--if you need the money back in before it has earned interest (first month or whatever), you should be aware that the bank will dock your principal the amount of interest you would have earned. This sucks big time and I speak from personal experience. Live and learn. :(

April 15, 2013 6:43 PM
 

frugal_fun said:

Thanks for this article!!! Also, it makes me famous. (Sorta)

I'm really thinking about Ally (there's actually a banner up as I type this) to move some of our liquid savings into. The I-Bonds look interesting - it's an option I had forgotten about. That might be a place to park some long term savings.

April 18, 2013 3:38 PM

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