Where to Stash Your Cash

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It’s good to save, but you could also be making money on that extra cash you have on hand.

Saving a few bucks is always good. But making hundreds to a few thousand dollars every year on what you already have saved is far better. You can do it by just having your cash work harder for you.

According to Bankrate.com, the average bank money market account is yielding just 0.12 percent annually, which is actually an increase over the past few years. Contrast that with some brokerage money market accounts and bank checking accounts still yielding 0.01 percent annually or even zero. Below are strategies I’ve used for over a decade — finding the highest-paying money market and savings accounts and finding the highest-paying certificates of deposits (CDs) that also happen to have a small early-withdrawal penalty.

First and foremost, always use a bank insured by the FDIC, or a credit union insured by the National Credit Union Administration. Both are agencies of the federal government, and individual accounts are insured up to $250,000 per institution, and joint accounts are insured for up to $500,000.

Cash without commitment

If you don’t want to tie up your cash in a CD, a money market or savings account may fit the bill. As of Aug. 10, Bankrate.com and DepositAccounts.com list accounts yielding as high as 1.40 percent annually. Because time is important to me, I typically stick to banks that have a history of higher rates, rather than move money every time a teaser rate ends. These include savings accounts at Synchrony Bank and Barclays Bank yielding 1.20 percent.

Though these rates may seem ultra low, if your cash is currently earning nothing, the Synchrony Bank account translates to an extra $120 annually on each $10,000 deposited, and $1,200 on each $100,000. Not bad pay for, say, a half hour of your time.

Another option to earn even more is Ally Bank’s no-penalty 11-month CD, paying 1.50 percent annually for deposits of $25,000 or more. As the name implies, you can get access to your money whenever you need it. I recommend also setting up a small money market account so that if you need funds quickly, you can cancel the CD and get fast access to your cash.

Earn more with a little commitment

I’m not real big on tying my money up, so doing so for five years makes me a bit nervous. But if it’s the right kind of CD, it may be right for you.

For example, a five-year CD at Sallie Mae Bank yields 2.35 percent APY and has a 180-day early-withdrawal penalty. I think of it as a one-year CD yielding 1.17 percent (the amount I’d earn after paying the penalty) that comes with an option to leave the money invested earning 2.35 percent annually for up to four more years. It also will pay a bonus of 1.18 percent if you leave it in for four more years, since you never pay that penalty.

The low penalty can be thought of as a hidden attribute. So the 2.35 percent amounts to $235 annually on each $10,000 deposited, and $2,350 on each $100,000 deposited.

You can find some of the highest-paying rates at Bankrate.com or DepositAccounts.com. This DepositAccounts calculator can help you do the math on CDs. 

Perhaps my favorite feature is DepositAccounts’ where-to-safely-grow-your-cash calculator. It demonstrates that over five years with a $10,000 deposit, I could earn this with these strategies:

• Lowest effort in a savings account — $720 (if rates stay unchanged)
• A bit more effort with a five-year CD — $1,369
• Working to get as much as you can — $2,763

Working to get as much as you can requires the extreme effort of opening multiple rewards checking accounts and making a minimum number of debit charges every month. I choose not to go with that option, as I’d lose out on my 2 percent cash back from my credit cards and have other things I’d rather do with the time it would take to research and open accounts. It may be right for you, however.

Other alternatives

Another place to easily and safely stash your cash is in a money market mutual fund. A Vanguard Federal Money Market Fund yields 0.93 percent. If you use a mutual fund money market account, stick to one that invests in U.S. government obligations, as money market reform now allows funds invested in non–U.S. government obligations to deny redemption requests.

Another alternative, with a higher return than CDs, is to pay down your mortgage, as long as you have enough liquidity. That can generally earn you 3 percent to 5 percent, depending on your mortgage rate, and save you thousands.

My advice

To keep your money growing, fight inertia and don’t let others profit by paying you peanuts. Spend an hour or two using some of these tools, and stash your cash where it’s working hard for you. Keep the money backed by the federal government. And also take the time to read the fine print on the CD and savings account disclosures, to make sure the institution doesn’t reserve the right to retroactively change any terms once an account is opened.