Best short term savings route

[2canSAM]

Just paid off my 2nd car and do not want to deal with another car payment. :disgust:
Looking at setting back about $ 500.00 month for 18 - 24 months to save for the next car purschase and was wondering what the best approach would be. I would like to have something with higher yeild than 3.8% but also need the flexibility yo add to it monthly. Not real sure about my options here as I know hardly anything about money management and investing.

 

[dullard]

Best solution: buy vehicles that will last you 15-20 years each. 😉

But to answer your questions, ING direct is 3.8% minimum (currently with a temporary promotional 4.75%) and will rise as interest rates rise.

Other online companies are similar.

 

[redfella]

I guess you could go with a CD. I've had a couple of them, but haven't been really satisfied. I usually net around 150 bones on 5000 invested for a 2-year period. It's profit, but overall a waste of time and effort. I personally will not be investing in CD's anymore.

The best advice I could give is to go with a short-term taxable account investing in mutual funds. www.americanfunds.com is a good start. My personal favorite mutual funds with AF are 1) "The investment company of america" and 2) "The capital income growth builder".

Good luck.

 

[BlueFlamme]

He said he wanted something with a higher yield than 3.8%. Obviously the 4.75% deal won't work because it is over in a month and he is talking about 18-24 month time frame.

Safe option:
CDs. Usually the min is around $500 so that works out, just buy one a month at the going rate and when you are within a year of when you'll need them start buying shorter term (they typically come in 3 mo, 6 mo, 9 mo, 1 yr, 18 mo, 2 yr)

The rates will vary depending on your location, sticking with the ING example, they currently have:
6 mo : 4.3%
9 mo : 4.35%
12 mo: 4.50%
18 mo: 4.65%
24 mo: 4.75%

Not sure what you can find elsewhere

Riskier option:
Invest in a mutual fund. Depending on where you go there are different minimums. Vanguard typically requires $3000 to open but you can add monthly/weekly after that with a $100 minimum. I don't know what the other brokerages have as a minimum. Just go with a safe overall fund like the S&P 500 or the total stock market. As an example:

Vanguard Total Stock Market Index Fund (VTSMX) earned 1.57% in distributions and went up in value 10.42% last year.

 

[BCYL]

Emigrant Direct is 4.5% permanently... This is not a temporary offer neither

 

[dullard]

Originally posted by: BlueFlamme
He said he wanted something with a higher yield than 3.8%. Obviously the 4.75% deal won't work because it is over in a month and he is talking about 18-24 month time frame.

Um, I said it is 4.75% for the first month, drops to 3.8%, and then rises as interest rates are hiked by the feds. That meets his needs perfectly.

He could ladder CDs (open a new one each month with successively shorter CD lengths), but since he wants to add monthly, it might be best just to go with a money market account due to simplicity.

Mutual funds are usually not good short-term investments. With the stock market at 5 year highs, and the economy is ok but not wonderful, there is not much reason to expect it to go higher in the short-term (buy low, sell high, and we know we aren't low). While, yes you can do well short-term, you could also lose bigtime in the short-term. And even if they do go up, the expected outlook that economists have is often around 6% from here (even less when you consider fees) - not much more than a CD. Probably it isn't worth the risk. If he did go with a mutual fund, American Funds is only a good option through your employer (otherwise, just save the fee money and go with Vanguard).

 

[redfella]

Note:

If you have a Mortgage payment (or something of the like) you will get MUCH more bang for your buck by paying that off first instead of investing in the stock market.

🙂

 

[Cal166]

I usually do CDs in 6months at a time because rates always changes.

 

[BlueFlamme]

Oh yeah, also check out Smart Investing Advice forums

 

[Taggart]

I have Emigrant Direct and ING. As they compete on the interest rate, I shift my funds. Right now I'm in ING for the 4.75%, after will go back to ED for 4.5%.

 

[alrocky]

Originally posted by: redfellaThe best advice I could give is to go with a short-term taxable account investing in mutual funds. www.americanfunds.com is a good start.

American Funds carries a front LOAD of at least 3.75% Your best advice is that he should lose 3.75% right away for a short term investment?