How To Earn More on Your Cash — Safely
The genesis of this post was wanting to sketch where I keep my “Cash & Equivalents.”
Meaning: the money I want to keep as safe as possible, while earning the best yield, that I will need in two years or less.
Before I get to the nitty-gritty on that, I want to begin by laying out the “life-cycle” of my (day job) paycheck and why it’s so, so important make as much as possible automatic.
Besides paying taxes, there are a few things that happen every single pay period:
- 401(k) Contribution
- Small Direct Deposit to my “brick-and-mortar” bank
- Direct Deposit Investment to my Roth IRA (at Fidelity)
- Direct Deposit (remainder) to an online High-Yield Savings Account (HYSA)
The 401(k) contribution is straight-forward: every two weeks, money gets transferred to my work-place retirement account
The “small direct deposit” is to a local bank that 1) provides the funds for my Cumberland Farms SmartRewards gas card and 2) gives me “place I can go” if I need to talk to someone, in-person.
The Roth IRA money is something I setup at Fidelity: I was able to choose the amount, day, and frequency. I also have recurring investments that then move that money into whatever ETFs I want (or Fidelity mutual funds, if I want… ).
The fourth place the money goes is my HYSA – that’s where I manage my money month-to-month.
I have been with CapitalOne for a while now. They may not offer the highest yield, but they are competitive (and they absolutely smoke anything my brick-and-mortar offers: 4.25% vs. 0.2%).
Within CapitalOne I have multiple savings account and one checking – they’re all free, have no minimum deposit, I can move money amongst all accounts on-line or on my phone, pay bills and I can open accounts anytime I want.
The checking account is linked to my Venmo account and is used mainly for paying rent.
The CapitalOne checking also has a huge fee-free ATM network, so I can get cash quickly and easily.
But, while 4.25% is decent, some HYSAs offer better rates, some in the low fives?
Well, that’s what my brokerage account is for; it’s currently at Vanguard, but if I were do it all over again, I’d go with Fidelity (I rolled both my Roth IRAs from Vanguard to Fidelity (for a few key features… )).
Even including the money in my HYSA, I get 5.45% on my “Cash & Equivalents,” and it’s all rock-solid, investment-grade.
What is all that? “CD”s are Certificates of Deposit (three to six month… ), the “T-Bill” is a Treasury Bill (three-month, I believe), JAAA is a Collaterized Loan Obligation ETF and the HYSA is the CapitalOne account(s).
I can get money out of either CapitalOne or the brokerage account in less than five days.
As the CDs and T-Bill mature I will increase my allocation to JAAA, likely to 25% Overall.
One thing that isn’t automatic is the transfer of money to (or allocation therein) the brokerage account.
Although I could easily automate that, I enjoy looking my cash level in my HYSA each quarter or so and transferring what I’m comfortable with .
I see the JAAA money as a kicker to goose returns a bit and believe it’s a very stable investment type with the only real risk being (slightly) lower future yields.
I use another CLO ETF (CLOZ) in my (active) Roth IRA, and it’s SEC Yield is 9.24%, but it’s not appropriate for this purpose/allocation (i.e. my risk tolerance for Cash & Equivalents).
If I wanted to simplify things I could just use a short-term US Treasury fund like SGOV, but I enjoy “browsing” for the best CD/Treasury available. (And I only have to do it every few months…. )
So, there you go, hope it was helpful.
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