Where to Put Your Money in a Low Rate Market
We are all certainly enjoying our lower mortgage payments. In keeping those reduced interest payments for ourselves instead of handing them to the bank, we can’t help but notice they are taking the same approach with our savings dollars, and have been for some time now, right? So if military Savings Accounts aren’t paying any interest, are they worth us paying any attention? We HAVE to save money, one way or another. Having no reserves whatsoever is not an option. Keeping all of those reserves in risky options like Securities is equally sinful. There has to be a middle ground, a diversification of your asset types.
Which brings up a plethora of other questions: What is the right mix between saving cash and investing? Where should I invest? Who has the best savings account for me? What else do I need to consider?
Some of these I’ll answer now. Others will be dealt with subsequently.
Military Savings Plan: What is the right mix between saving cash and investing?
I wish I could give you a short easy answer to this, but if I did, it would only be right for about 10% of you, but it would be off for the majority, no matter what the answer I gave would be. Why? Because this completely depends on your own personal situation. Opinions differ, which makes it hard to find advice that you feel comfortable with. The right thing to do is to talk to a licensed professional; either a Certified Financial Planner (CFP) or Financial Advisor.
Here’s what I can say with confidence…I’ll give you 5 rules to live (or save) by:
- You should always have an emergency fund that is cash. I aim for 6 months’ worth of fixed expenses personally. For example, if your mortgage is $1000/Month and you have two car payments totaling $500/month, and $500 in other monthly expenses that must be paid (credit card payments, student loans, cell phone, child support, etc.), your total fixed expenses would equal $2000. My first priority would be to save $12,000 and set it aside as an emergency fund.
- Once I had an emergency fund, my next priority would be to pay off all revolving debt prior to saving further or investing. This means reducing your credit card debt aggressively to ZERO.
- Once my emergency fund was set and I had zero credit card debt, I would turn my attention to finding a suitable investment strategy
- The closer you are to retirement, the higher percentage you should have in liquid assets (i.e. Cash, Money Market)
- At any given point in time, your mix between saving cash, investing, and paying down long term debt will depend on your age, goals, financial means and risk tolerance.
I, for one, have what some would call a risky job, as we are all commission-only sales people. I typically make more money in this job than I would if I chose a safer, salary only job: risk vs. reward on display. However, since I am taking on that risk with my income, I tend to keep the majority of my savings in cash instead of investing it. I feel that the decision to limit risk in my portfolio offsets the higher risk of my income to some degree, instead of being risky with both. My person mix is 80% cash (money market savings account) and 20% stocks (Scottrade Account). If I had a lower paying but safer job, I would probably flip that ratio and try to make more money in the Equity Markets (although honestly, I’m a bit skeptical that the “equity” markets are truly “equitable” at this point).
Military Savings Banks: Who has the best savings account for me?
There are a few ways to find quick answers to this (i.e. look on Bankrate.com or google “best savings account interest”), but really it depends on what you want. For example, my US Bank Savings account pays me a measly 0.06% APY in interest annually…so basically, nothing. I know I could go move my money to, say, a Capital One Savings account and earn 1% interest. That’s literally 16x more interest! I’d be crazy not to, right?
Not so fast. I do my Checking with US Bank, and it’s right next to my house. I like being able to look at both accounts on the same screen, and remember one less login account. Plus, it earns me free checks. Is it worth it to change? And since I have such a modest savings balance at this point in my life, we’re only talking about a $94 a YEAR difference in interest. If it was $940, I probably would. If it was $9400, definitely!
I was disappointed to find that Military banks like USAA and Navy Federal have much, MUCH worse interest rates than you can readily find other places, and there is no really superior “veteran” non-retirement savings product. I found lots of options, including Capital One, Ally, and Discover that were between 0.80-1.00%. Outside of the SDP, which the DoD offers directly to active duty whom are currently deployed only ,the best military option was Navy Federal at only 0.45% interest (which was still better than USAA’s pathetic 0.5-0.30% offering).
If, somehow, you have found us while on deployment (or just prior to), you NEED to check out that Savings Deposit Program offered by DFAS. According to their website:
A total of $10,000 may be deposited during each deployment and will earn up to 10% interest annually. You cannot close your account until you have left the combat zone, although your money will continue to draw interest for 90 days once you’ve returned home or to your permanent duty station.
Stay tuned for a future post for me to address where and how to invest. Remember, I am not a licensed investment advisor, so please consult one prior to making and investment related decisions. Since they do not (to my knowledge) license “savings advisors”, you can go ahead and take my advice there!