What about high yield accounts for high balances?

[disneysteve]

Thanks to poundwise, we've got that great list of high interest rate accounts with low or no minimum deposits. But what about high minimum accounts? As I've posted, my mom just sold her house and has a 6-figure amount she needs to park somewhere. I'm trying to research the best place for it. So far, I've found two options.

1. Stearns Bank, paying 5.27% with a minimum of $100,000.
2. Countrywide Bank, paying 5.4% with a minimum of $50,000.

Obviously, I'm leaning toward #2 for 3 reasons: higher rate, lower minimum and they happen to have a local branch nearby so she can do business in person or online.

Does anyone else have any suggestions I should consider?

[Scanner]

Well, I may be repetitive but it's worth exploring - how about T. Rowe Price's NJ Muni Bond (if your mom is in NJ like you)?

It is paying around 4-5% but her effective yield will probably exceed the effective yield after she pays taxes on those savings accounts.

Of course, there's market risk. . .not sure if she's willing to endure that.

[safari]

How about ING Direct Electric Orange Checking account? It's paying 5.30% APY if your balance is $100,000 or more. Here is more info: Electric Orange Account Information Page

[disneysteve]

One problem with Stearns and ING (thanks for that tip) is the 100K minimum since FDIC insurance only covers you up to 100K. Not that I expect any major bank to close up anytime soon, but one never knows. At least with Countrywide, it is only a 50K minimum. She can put most of the money in there and buy a CD from another bank with the remainder. Plus their rate is slightly better anyway.

[safari]

What is the purpose of that money? If she won't need that money in the near future, I would recommend investing it. If you are just looking to park that money for a short term, you might want to consider EverBank. They are currently running a promotion where they pay 6.01% introductory APY for the first 3 months after opening a free net checking account with them. After the first 3 months the rates are not that great, but you can move the money into another bank with a higher rate. I think this is currently the best offer available. You can get more info here.

[disneysteve]

What is the purpose of that money?

We should all have this problem, but she really doesn't need the money for anything. In fact, now that the house is sold, her disposable income will rise considerably. For nearly 10 months since she moved, she's been paying the house expenses (insurance, taxes, utilties) even though she wasn't living there. That was costing her about $300/month that she no longer has to spend. Add in the interest the proceeds from the sale will generate even in a MMA and she is in great shape.

She has no desire to take any market risk with this money, nor does she really have any need to. She is almost 77 and has plenty to cover her needs. She has long term care insurance in case she needs it. She is debt-free. Basically, she is living the retirement we all hope to have. And she does have some of her portfolio in stocks, so she isn't totally risk-averse and does get some inflation protection there.

So the growth this money will see at 5.4% will be plenty for her.

[Scanner]

DisneySteve,

I respect that decision - really, you can't beat 5.4% nowadays for a conservative insured type of vehicle.

It sounds like your mom is a wealthy woman though and tax liability may be an issue here.

If she doesn't want market or principal risk (and again, I can respect that), she could buy a few individually insured muni bonds that would return about 4.5%. . .her effective yield may be higher than that 5.4% by the time taxes are done. She could rest knowing the money is protected and earning interest tax free.

(forget the formula on effective after tax yield. ..oh, OhioJim. . .OhioJim. . .would you punch the numbers on that? )

The money would be parked for awhile. . .but you don't seem to think liquidation/access to the money is important right now. . .so just go short term on the bonds.

Plus. . .it' just kind of nice to know that you just don't have to pay tax on distributions, whether you come out ahead or not.

I'm not trying to get too sophisticated on you. . .again 5.4% isn't that bad but interest rates could fluctuate and go down so there's even market risk there (although no principal risk). What's a great rate now could drop to 4% by December.

Good luck with whatever you decide.

[kv968]

If she doesn't want market or principal risk (and again, I can respect that), she could buy a few individually insured muni bonds that would return about 4.5%. . .her effective yield may be higher than that 5.4% by the time taxes are done. She could rest knowing the money is protected and earning interest tax free.

Assuming a muni bond at 4.5%...

At a 15% federal tax rate and a 3.5% state tax rate the equivalent taxable yield would be: 5.52%

At a 25% fed tax rate and a 5.5% state tax rate the equivalent taxable yield would be: 6.47%

Sorry jIM Ohio. Just figured I'd jump in

[disneysteve]

I think the muni bonds are something we need to look into for the long term. I really know very little about them. I have to check on her tax rates and see what NJ munis are going for. The rate difference may not be that big, but it might allow her to lock in a good rate for a longer term in case rates fall.

[scfr]

Mutual fund companies offer muni funds as well. I'm sure someone has a NJ muni fund. Or, if saving on state taxes is not important to your mother, she could invest in a general muni fund. If insurance is important, Vanguard has a long-term insured muni fund that has had a 10-year average total return of 5.71% (and that does not factor in the tax savings). If you buy Admiral Shares ($100K or more in a single fund with Vanguard) your fees are even less than Vanguard's already low fees.

***Important Note: Only the dividend portion of income is free from tax. She would still have to pay tax on the capital gains.***

2 places to read up on munis:
- Investinginbonds.com
- Zion's Direct Bonds for Less Program (where you can see prices for individual bonds available for purchase, and can even search for bonds issued by your state) --- I have to admit I REALLY dislike Zion's Bank, but their Bonds for Less site is a good way to learn a bit.

FYI, a term you're going to see a lot is TEY. It means "taxable equivalent yield."

Good luck figuring out what to do!

[disneysteve]

Just a follow-up in case you are interested.

We put 43% of the money in the Savings Link account at Countrywide Bank earning 5.4%.

We put 57% of the money in a 10-month CD at World Savings Bank earning 5.56%.

Thanks for the input everyone.

[poundwise]

Just a follow-up in case you are interested.

We put 43% of the money in the Savings Link account at Countrywide Bank earning 5.4%.

We put 57% of the money in a 10-month CD at World Savings Bank earning 5.56%.

Thanks for the input everyone.

Nice.