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A safe place for savings

Chris Farrell Sep 7, 2010

Question: I work for a small startup company and because of sparse resources at the company, I received all of my paychecks at once (after taxes) for last year-2009- about a month ago. Since the company’s future is still not clear, I’m not receiving any paychecks for this year. At best, I can probably expect to receive another lump-sum at the beginning of 2011. At worst, if things look like the company is not going to succeed, I may need to start looking for a new position by the year’s end.

My question is about the money that I currently have sitting in my Checking account (about $20k). I have about $1,500 in monthly expenses and only student loans ($25k @ 2%) Retirement contributions have already been made for this year and I don’t have any other short/long-term debt besides the student loans.

Is there anything I can do with this money so that

a) I keep it liquid enough to withdraw about $1,500 monthly plus small expenses
b) its accessible in case I do need cash to hold me over until finding a new job and
c) I get some reasonably modest return on it (hopefully better than the 1.25% that my Bank offers for Checking accounts) Christopher, Washington DC

Answer: You’re living with a lot of paycheck vulnerability. I hope the start-up plans on rewarding you with huge bonuses or a bucket of stock options if the enterprise makes it.

I think you’re already handling your money right. You have so much risk built into your job–and potential job search–that your savings should be risk-free.

The savings are your financial ballast.

You might want to look at putting the money into an online Federal Deposit Insurance Corporation (FDIC) back savings account or an online credit union savings account backed by the Credit Union Share Insurance Fund. (The NCUSIF is the credit union equivalent of FDIC.) You might be able to get a better interest rate with an online bank. Other than that the price of financial safety is a very low yield. Yield isn’t important. The safety of principal is vital.

I wish I could give you more razzle dazzle advice than suggesting a plain vanilla federally insured online savings account. But sometimes boring and safe is the right way to go–at least when it comes to investing money.

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