Being my money blog and all, I inherently have a biased focus on the best places to keep own my money based on my own personal tax situation, time horizons, and existing accounts. So far I’ve mostly talked about the banks in my online savings accounts comparison, savings bonds, and Treasury bills. However, I do feel like I should point out that there are definitely some alternative options to safely ‘stash your cash’ that also offer good if not better interest rates depending on your own preferences. They include other online banks, bank CDs, brokerage taxable and tax-exempt money market funds:
Other Online Banks
In my savings account comparison, I only list banks that have no minimum balance requirements, mainly because I see that as a big draw to these accounts. If their rates drop, you can move your money out with a click of a button. However, there are definitely other options out there, such as GMAC Bank and AmboyDirect.
GMAC Bank offers a FDIC-insured money market savings account with a lot of good features:
Recently competitive interest rates, currently 4.75% APY
Limited check-writing ability(3 per month)
ATM Check Card with ATM fee rebates, up to $6 a month
Add external bank transfers easily
Hard credit check upon opening
$500 minimum to avoid fees
I personally have not opened an account here due to the minimum requirements and hard credit check as I already have a Premier Savings account at Presidential bank paying 4.75% APY as well, and I don’t need check-writing or ATM fee rebates. But, these are nice features at a great rate and perhaps worth considering.
Bank Certificates of Deposit (CDs)
With the interest rates hikes likely to stop soon or at least slow significantly, some longer term bank CDs may start to look appealing for those who don’t need immediate access to their money. Many times, you don’t even need to switch banks or open a new account. Some examples:
Capital One 360 – 12-month CD earning 0.40% APY.
VirtualBank – 6-month CD earning 5.00% APY.
Emigrant – 5.00% APY CD, anywhere from 9-months to 10 years
GMAC Bank – 12-month CD earning 5.30% APY.
Again, these aren’t the best rates at any bank, just an example of how you could easily gain a higher rate in exchange for locking up your cash for a longer term. Minimum opening balances and early withdrawal penalties will vary by bank.
Brokerage Money Market (MM) Accounts
For a while, money market funds at available at stock brokerages were lagging the top online savings account rates significantly. But now, they can be very competitive. Here are some examples and their recent yields after expenses:
Vanguard Prime Money Market – 4.59%
Fidelity Money Market Fund – 4.54%
Note that these are not FDIC-insured. However, they are very safe and are usually invested in short-term, high-quality investment like T-Bills. A brokerage is likely to back the money market fund with it’s own assets to preserve trust in the company rather than let it lose you money. Of course, sticking with a more well-known company is also a good idea.
For those in higher tax brackets or in high-tax states, tax-exempt funds can also be a good option. Here are some examples:
Vanguard Tax-Exempt MM Fund – 3.51% (Fed exempt)
Fidelity Tax-Free Money Market – 3.25% (Fed exempt)
Vanguard CA Tax-Exempt MM Fund – 3.42% (Fed & CA exempt)
Fidelity CA Municipal MM Fund – 3.21% (Fed & CA exempt)
Vanguard MY Tax-Exempt Money Market Fund – 3.46% (Fed & NY exempt)
Fidelity New York Municipal MM Fund – 3.16% (Fed & NY exempt)
Here is a nice CNN calculator to figure your own equivalent rate. It was made for bonds, but works for this too. (Note that it assumes state tax is fully deductible from federal taxes, which may not be the case for everyone.) For instance, if you were in the 28% Federal income tax bracket, 3.51% would be the same as a taxable savings account at 4.88%. This is also ignoring any AMT concerns.
So look around, lots of people want your cash!
By Jonathan Ping | Banking | 5/6/06, 5:39pm