Wisdom wanted on savings

[Markor]

So here I am, where I didn't want to be. Sold my house, now I'm renting. I want to get my sizeable former equity moved into a reasonably safe place to wait out more of the bubble pop.

I can look up on bankrate.com and find "high yield" savings accounts (like US Bank's 0.40% deal!). But I'll take into consideration any input from other Seattle Bubblers, and with great appreciation. Any experiences with the high-yield savings banks that were so bad I should not test their waters myself?

I don't want to take any big bets or risks, since I'll use the money for another house someday, but I am aware that staying in the US dollar may well be a bet of sorts. For now I'm willing to take the risk that the FDIC will answer the phone if my bank fails (for $100K max).

Do you think the dam will break in the next few years, so that CD rates are, say, 7+% again?

[Alan]

Berkshire Hathaway.
Silver.
US Treasuries.

The higher the interest rate offered by a bank, the more desparate they are for cash and the more likely your money will be tied up by FDIC paperwork.

[deejayoh]

Markor -
I thought you just bought your house recently. What gives?

[Nell Plotts]

markor, you don't indicate whether or not you might need that money in the near term, or an intermediate term, so I will tell you what I recommended to my brother who is in a somewhat similar situation: build a ladder of CDs and Fed bonds, and keep the CDs in digestible pieces that never exceed $100,000. Were I you I would choose something like $20,000 pots for any one bank or credit union. I know, this is like having a lot of $20 bills in your pocket, but it is not so much that if tied up in a reorganization of a bank would change your life.

Of most of us working stiffs and retirees a 10 year ladder is reasonable and should enable you to catch any interest rate increases along the way. This assumes you don't plan to use all of it sooner.

If you plan to buy another home in say two years consider what you would put down on the house (lending standards will be much tighter, so budget 20% at least). Manage your ladder so that much money will be available by your target date.

As my Mother used to tell me when I went shopping, don't spend all your money in one place.

[WestSideBilly]

Nell's advice is pretty solid, but I would avoid tying my money up in short term (6mo/1yr) CDs because the rates are so low (3.1%). ING, HSBC, Emigrant, and other online banks offer plain savings accounts that are fetching 3.4%-3.8% for savings and MMAs. And the money is completely flexible, so you can move the money to 6mo/1yr/5yr CDs if they become more lucrative. I personally wouldn't put more than $50k in any one pool.

I don't know a lot about bonds but they may have a bit better interest right now, but obviously tie your money up for a longer time.

The question as to how soon you may want to tap this money is significant to your approach. If you're planning on renting for 5 years, that changes the equation a bit.

[mking]

my personal risk tolerance right now is that i am less worried about losing to inflation that i am about losing principle in a market crash. in august 07 i liquidated 1/2 of my mutual fund IRA and moved it to a local bank CD based IRA. i sleep alot better. i am considering moving the other 1/2 soon. to put things into perspective, i lost an 11 yr pension fund becasue the company i worked for was bought out, and the purchaser played games with the pension fund (ala enron, converted it all to company stock) and then went bankrupt. this IRA represents the last 10 yrs at another company, and i dont want to be burned 2x.

[Markor]

[Markor]

[Markor]

[david_mcmanus]

Markor,

Criminals will always be in the White House, no matter which party it is.

-David

[TJ_98370]

.
You might want to consider municipal bonds. I don't think somone as saavy as Mr. Buffet would offer to be an insurer if there really was increased risk of default.



In a topsy-turvy market of worry and low interest rates, investors are finding deals in a place they might not generally look—municipal bonds.....

.....In recent weeks, the prices of even the safest of municipal bonds have declined because of factors that have little to do with whether states and cities will make good on their promises.....
.

[Markor]

[Markor]

[david_mcmanus]

[Markor]