Need a place to store $5k for a while...best options?

[BlamoHammer]

I have around $5000 that I want to put away and forget about for about 5 or 6 years. I want to be able to add to it monthly and have limited access to it. I'm hoping that with enough contributions that it can be a good starter to a down payment on a house later on. What would be my best option for it? CD, money market, CD, etc? I have very limited knowledge in this arena and would appreciate any and all feedback the forum can provide. Thanks!

*edit* USAA is offering 4.24% interest on a 60 month CD. This is among the best rates I've seen. Any opinions?

 

[PoPPeR]

A Plasma TV :beer:

I have no idea, but I'm sure one of the financial wizards on AT can help you

 

[Ameesh]

Easiest thing is in a CD, or you can buy equaty in one or several companies.

 

[GasX]

With a 5 or 6 year investment time frame, I would say put it into a high dividend paying preferred stock. You will get a very good risk adjusted return.

 

[BlamoHammer]

Originally posted by: Ameesh
Easiest thing is in a CD, or you can buy equaty in one or several companies.

From my limited research so far that was looking like the most likely option. What kind of return rates should I be expecting to get back for say a 5 year CD? Preferred companies to deal with? What are the advanatges to spreading it out over different companies?

 

[BlamoHammer]

Double post. I will use this opportunity to state that no matter how dumb she is, I would pound Jessica Simpson into obliviion.

 

[krunchykrome]

Originally posted by: BlamoHammer
I have around $5000 that I want to put away and forget about for about 5 or 6 years. I want to be able to add to it monthly and have limited access to it. I'm hoping that with enough contributions that it can be a good starter to a down payment on a house later on. What would be my best option for it? CD, money market, CD, etc? I have very limited knowledge in this arena and would appreciate any and all feedback the forum can provide. Thanks!

Well, if you want to put it somewhere for 5-6 years, Id say invest it. But it doesnt sound like you wanna take risks here, so your best bet would be a money market account.
NOTE: You wont earn sh*t in a money market account, and barely anything in a CD.

The only reason I say money market over a CD is because you can access your money market account just as you would with a checking account. The only difference is that you would have to keep a large balance, and you would receive interest. They will give you checks and such so you can access your money market account.

However, a CD will offer you more interest. The longer you have your CD for (ex: 1 year, 2 years, etc), the more interest you will receive. The drawback, you cant access your money until your CD length is over without paying a penalty. The penalties will generally be 6 months of interest, or something like that, depending on which financial institution you bank with with.

Recomendations:
For a CD, ING Direct offers the best rates.

For a money market, you should shop around and look at different features each financial insitution will offer you

Here is a good resource:
www.bankrate.com

 

[GasX]

Go register at The Motley Fool and they will send you an article that mentions 7 very good bets for this exact purpose.

 

[gluck]

Yes I have a similar problem. I have some money in checking acct. which has been fetching me any interest. So I did a couple of things. I opened a Money Market Savings Acct. which needs a min $1200 balance & will fetch me 1% interest and got a CD created. I liked the one BA offers, their a 9 month CD for 1.4% and you could break it any time after 6 days without penalty as long as you put the money in a Savings acct.
I don't know how good my decision was but atleast I get interest on the money now. I bank with BA and dunno if other banks offer better rates.

 

[BlamoHammer]

Originally posted by: krunchykrome

Originally posted by: BlamoHammer
I have around $5000 that I want to put away and forget about for about 5 or 6 years. I want to be able to add to it monthly and have limited access to it. I'm hoping that with enough contributions that it can be a good starter to a down payment on a house later on. What would be my best option for it? CD, money market, CD, etc? I have very limited knowledge in this arena and would appreciate any and all feedback the forum can provide. Thanks!

Well, if you want to put it somewhere for 5-6 years, Id say invest it. But it doesnt sound like you wanna take risks here, so your best bet would be a money market account.
NOTE: You wont earn sh*t in a money market account, and barely anything in a CD.

The only reason I say money market over a CD is because you can access your money market account just as you would with a checking account. The only difference is that you would have to keep a large balance, and you would receive interest. They will give you checks and such so you can access your money market account.

However, a CD will offer you more interest. The longer you have your CD for (ex: 1 year, 2 years, etc), the more interest you will receive. The drawback, you cant access your money until your CD length is over without paying a penalty. The penalties will generally be 6 months of interest, or something like that, depending on which financial institution you bank with with.

Recomendations:
For a CD, ING Direct offers the best rates.

For a money market, you should shop around and look at different features each financial insitution will offer you

Here is a good resource:
www.bankrate.com

Thanks for the info. Im more inclined to do the CD because of the penalties associated with it. If its a dire emergency I can still get to my money, but I wont be able to just pull it out in case I decide I need to buy something. I know it sounds stupid but thats a benefit.

 

[krunchykrome]

Thanks for the info. Im more inclined to do the CD because of the penalties associated with it. If its a dire emergency I can still get to my money, but I wont be able to just pull it out in case I decide I need to buy something. I know it sounds stupid but thats a benefit.

Yea, I understand. It's a discipline thing. If you know you'll get slapped for touching your money, your not gonna touch it.

 

[rh71]

Originally posted by: BlamoHammer
Double post. I will use this opportunity to state that no matter how dumb she is, I would pound Jessica Simpson into obliviion.

LOL. :beer:


Oh right.. the point... a CD is definitely the easiest but obviously you'd be LOCKING your money up. I don't believe you can "add" to it either... just open up more CDs when you accumulate another landmark amount. I've done them 6months-1 year at a time. 5 years is REALLY long.

 

[dquan97]

Put it into a Roth IRA, considering $3K as last year's contribution and $2K as this year's contribution. Then invest in a CD, savings bond fund, or money market. The interest will grow tax free and when you need your $5K, you can redeem it without any penalty.

 

[rgwalt]

I don't believe you can add to a CD on a monthly basis. Typically you buy a CD for a certain period of time, say 12 months. Money market savings is just a higher interest savings account with a relatively high minimum balance. My advice would be to go and talk to your bank. They should be able to give you some options.

You could go with mutual funds, but this route will require a lot more research on your part prior to investing, and you could lose money.

I would take that $5000 and put it into a 60 month CD. Take your monthly savings and collect it over the course of a year. At the end of the first year, but a 48 month. End of second, a 36 month. End of third, a 24 month, and end of fourth, a 12 month. Make sense? Hold onto your monthly savings. Open a savings account to manage your money, if necessary. At the end of the year, use the savings to buy another CD. Keep in mind that many banks require that you throw down at least $1000 when you buy a CD. If you followed my scheme, and if your bank was giving you the national average for CD rates, and if you threw in $1000 a year on CDs, you would put $9000 into the system (initial deposit and four more deposits at the beginning of the second, third, fourth, and fifth years) and you would get out around $10,000, so that is over $1000 in free money thanks to compound interest.

This assumes that the current rates for CDs don't increase or decrease over the next five years. However, when you buy a CD, I believe you lock yourself into a certain rate, which can good or bad depending on what the interest rates do. Keep in mind there is typically a penalty for early withdrawal, so if you needed that $5000, the money would be locked away in a CD and you couldn't touch it without the penalty.

Good luck.

Ryan

 

[krunchykrome]

Originally posted by: rgwalt
I don't believe you can add to a CD on a monthly basis. Typically you buy a CD for a certain period of time, say 12 months. Money market savings is just a higher interest savings account with a relatively high minimum balance. My advice would be to go and talk to your bank. They should be able to give you some options.

You could go with mutual funds, but this route will require a lot more research on your part prior to investing, and you could lose money.

I would take that $5000 and put it into a 60 month CD. Take your monthly savings and collect it over the course of a year. At the end of the first year, but a 48 month. End of second, a 36 month. End of third, a 24 month, and end of fourth, a 12 month. Make sense? Hold onto your monthly savings. Open a savings account to manage your money, if necessary. At the end of the year, use the savings to buy another CD. Keep in mind that many banks require that you throw down at least $1000 when you buy a CD. If you followed my scheme, and if your bank was giving you the national average for CD rates, and if you threw in $1000 a year on CDs, you would put $9000 into the system (initial deposit and four more deposits at the beginning of the second, third, fourth, and fifth years) and you would get out around $10,000, so that is over $1000 in free money thanks to compound interest.

This assumes that the current rates for CDs don't increase or decrease over the next five years. However, when you buy a CD, I believe you lock yourself into a certain rate, which can good or bad depending on what the interest rates do. Keep in mind there is typically a penalty for early withdrawal, so if you needed that $5000, the money would be locked away in a CD and you couldn't touch it without the penalty.

Good luck.

Ryan

There are CDs you can add money to on a daily basis, it depends on the bank. If you keep saving your money and get a 24 mon cd, then a 12 month cd...so on, compound interest wont work for you in the same manner as it would if you drop $5K in a big CD and sit on it for 5 years. Not to mention, adding money to it whenever you can (it is not a rare feature of a CD.)

 

[gluck]

I think there is something called CD ladder that enables you to create small CD's and get better interest.

 

[GasX]

It 5 years! How can ANYONE think a CD is a smart investment for 5 years? You are throwing around all of these options when the difference in interest in 5 years will be about $10 at CD interest.

Buy a bond, buy a preferred stock, buy a dividend paying stock. These a low risk investments....

 

[krunchykrome]

Originally posted by: Mwilding
It 5 years! How can ANYONE think a CD is a smart investment for 5 years? You are throwing around all of these options when the difference in interest in 5 years will be about $10 at CD interest.

Buy a bond, buy a preferred stock, buy a dividend paying stock. These a low risk investments....

A five year CD will generally yield an interest rate of 4%...give or take.

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Five years should earn you roughly $1200.

Mwilding is right though, a low-risk investment such as bonds would be better.
I personally would put it in the market and play with it daily/weekly.

 

[damiano]

once again
a hole in your backyard
or you can always give them to me

 

[BlamoHammer]

Any opinions on I Bonds? I am reading up at The Motely Fool and they list the only con as being the penalty you pay for pulling it out before 5 years is up (three months earnings, not a big deal for my situation).

Anyone have experience with these?

 

[BlamoHammer]

USAA is offering 4.24% interest on a 60 month CD. This is among the best rates I've seen. Any opinions?

 

[DaWhim]

give it to me

 

[GasX]

Here is an example of what I was talking about:

Sturm Ruger (ticker:RGR) - Maker of rifles, handguns, etc...
Current stock price: $13.46
Dividend: $0.80
Dividend Yield: 6.00%

If you invested your $5000 in RGR at today's price, you would get about 370 shares. This would get you $296 in dividends this year or $1480 over the five years. If the company does well, it will increase the dividend payout. Also, if the company does well, your stock va;ue will increase as well.

Yes, this is more risky than a CD as the company could have some bad years and cut the dividend and the stock price could drop. However, you always have risk in the stock market. The reward for taking this risk is the potential for far greater returns.

It is not unreasonable to expect a steady $300/year dividend and a meager 10% increase in the stock price during that time. In five years, you will have a a pre-tax return of $2500. Also, you will be favorably treated by the new tax laws. Dividends are good...

 

[neutralizer]

I hold it for ya.

 

[dman]

Why wait, Buy a house now. $5000 is 5% down on a $100K house/villa/townhome. In 5years (if you bought in a decent area) you can sell that house,for, probably, $120K (conservatively). Figure $3K in closing costs now, and you'll have earned 12K in 5years. Of course, you'll be spending a lot of interest each month, but, unless you are living rent free right now (w/ the rents) it's a pretty good option. And if you are living rent free, well, you can still buy a house and become a landlord and rent it out.

Sure, there are downsides, but, seriously, think about it.