(Note: interest rates updated as of 3/7/05)

As interest rates continue to rise, there is again reason to really scrutinize where you park your liquid cash, as that “free” checking account really isn’t free when your money could be earning it’s keep somewhere else. Here is how I handle most of my cash that I want to keep easy access to:

Bank of America
Interest Rate: 0%
Use: Day-to-day expenses, usually Pros: ATMs everywhere for convenient cash withdrawals and check deposits, great reliable online Bill Pay system, free tellers, they take my rolled coins and give me free wrappers, no minimums and free with Direct Deposit.
Cons: 0% interest

Presidential Bank
Interest Rate: 3.00%
Use: Bulk of cash savings (interest rate good up to $25,000)
Pros: Good interest rate, it’s a checking account instead of a savings accounts, so unlimited checkwriting and easy withdrawals with ATM card.
Cons: No local branches, Sub-par Online Banking and Bill Pay, Requires $200 monthly direct deposit and $1000 minimum to avoid fees.

VirtualBank
Interest Rate: 2.60% (for bal. up to $10k)
Use: Emergency Money, Excess from Presidential
Pros: No minimums, decent rate. My favorite is VirtualBank, which allows you to connect 3 banks, and allows you to initiate ACH transfers both in and out to those banks. It allows you to redistribute your money as you see fit, and also can simulate a regular direct deposit from your employer.
Cons: Online only, No local branches, No ATM access, Only 6 transfers out per month without fee.

Edit: Updated Bank Account Comparisons.

I have decided upon Vanguard for my Roth IRA Brokerage. My decision was based upon the following:
1) I want to invest solely in mutual funds, specifically index mutual funds.
2) I want a large selection of no-transaction fee, no-load mutual funds with very low expense ratios.
3) I want minimal fees, especially tricky or hidden ones, from the brokerage.
4) I want it online, with a good web interface.

These points narrowed it down to:
a) Fidelity, a mutual fund behemoth which has a nice selection of in-house funds with expense ratios as low as 0.10%. However, the minimums for those funds are $10,000 each. It also has a great web interface, as I use it for my 401k account.
b) Vanguard, which was a leader in the index fund movement and has an enormous selction, with very low expense ratios. I have no idea what the web interface is like, however.
c) Scottrade, a smaller company which currently has no transaction fees for ANY of it’s mutual funds. However, I have heard through the grapevine that it may start charging soon, as they are currently losing money on each transaction doing this. (Update: They now charge for no-load mutual fund transactions)

Since I already have my 401k at Fidelity and am already invested in many of their mutual funds, and I want to keep my Roth IRA somewhere stable for the long run, I leaned toward Vanguard. After some more research, I saw that many of Fidelity’s index funds have $10,000 minimums, even for retirement accounts. Unfortunately, the max for 2004 IRA contributions is $3k, 2005 is $4k. Thus, Vanguard wins out.

Vanguard has an IRA custodial fee of $10 a year for each fund account having a balance of less than $2,500 to $5,000. I plan to have at least $5,000 total, so I may be exempt from that. Many of it’s funds also have a quarterly $2.50 account maintenance fee for account with less than $5,000 to $10,000. Regarding the account maintenance fee, they say it “is paid directly to the fund and therefore is not considered a load”. So I guess some the $10/year comes back to me, as it pays into the fund. Still, I would be subject to this for at least a year. Not ideal, but it’s better than less my cash sit and shrink from inflation, not to mention $10 is less than one stock trade at most places. So I’m off to Vanguard to open an IRA…

As you may have noticed, my portfolio is defintely cash-heavy. There are two mains reasons for this:
1) I am currently renting and am saving up for a downpayment for a house in the next 2-3 years, and would like to keep the money somewhat liquid.
2) I don’t know that to do with it. I don’t want to be investing in the current trendy idea, and have it bomb right before I find the perfect house. Still…

…earning 2% interest is not going to help my downpayment money grow. I heard you can withdraw money from a Roth IRA to pay for your first home, but after doing some research, I found out that you must wait five years first. I’d like to think I’d be owning my own house by then… However, putting money into a Roth isn’t a bad idea anyways. So, I have decided to fund a Roth IRA. I can put in $3,000 for 2004 and $4,000 for 2005 for both my wife and myself each, as we satisfy the income restrictions this year and the next. Either it stays in there as a great retirement vehicle, or I can pull it out to pay for a house.

Next step: Which brokerage firm to use, and where to allocate my assets – stocks/bonds/REITs/pork futures?