Pay attention to your cash accounts

[disneysteve]

Between the two of us, we have quite a few investment accounts with traditional, Roth, rollover, and SEP IRAs, a 401k, a couple of brokerage accounts, etc. In several of those accounts, cash accumulates from interest and dividend payments and I am guilty of not paying enough attention to that cash. I sat down last week and checked every one of our accounts and found a total of over 150K sitting in cash. Now that's not quite as bad as it sounds since about 130K of that was in the Vanguard settlement fund earning 5.27% which is just fine. The rest, however, was at Schwab earning 0.45% in their crappy settlement fund. I went on today and moved that to their MMF that actually pays decent interest (5.18%) On 20K, that will earn us an extra $946 in a year.

There's nothing wrong with holding cash if it fits your needs and goals but make sure that cash is working for you. Despite the high rates we've been enjoying for a while now, there are still a lot of accounts out there paying next to nothing.

[QuarterMillionMan]

In my Chase checking account I have a $25,000 balance which I know is only earning .01% interest or thereabouts. I should just keep the bare minimum or a few $1000 over but lazy. Now that you point out $20,000 would earn $946, I need to get myself to move it.

[disneysteve]

In my Chase checking account I have a $25,000 balance which I know is only earning .01% interest or thereabouts. I should just keep the bare minimum or a few $1000 over but lazy. Now that you point out $20,000 would earn $946, I need to get myself to move it.

Move 20K and you’ll earn over $1,000/year more. That’ll pay for a lot of hands of video poker.

[QuarterMillionMan]

You convinced me to get myself in gear so I transferred $20,000 into my Ally account which will be executed on April 5, 2024. Not sure why it takes 2 days to transfer the funds. With bitcoin it moves instantly. Banks still have their strangle hold on our money, sheesh.

[disneysteve]

You convinced me to get myself in gear so I transferred $20,000 into my Ally account

Good job. It’s so easy to move funds around these days there’s really no excuse to leave large sums earning nothing. I only keep about a month worth of spending in checking. Everything else is earning 5+% now.

[QuarterMillionMan]

I transferred another $3000 into my Capital One online 360 savings account since my Chase has direct deposit and with direct deposit $0 monthly service fee. Upon doing so I was delightfully surprised to see that Capital One credited my account with $1500 for a promotion that I forgot about 3 months where opened a new account with Capital One and I deposited $100,000 in order to get the max $1500 bonus.

[Jluke]

I had to rewire my brain on handling cash in accounts.

for years the rates were so low that I wasn’t very aggressive with maxing interest. My big pot was at CapOne and I don’t even remember now how low the rate was.

now I’m pushing the mortgage payment to the end of the month and paying credit cards the day before they are due. Just to get a few more dollars per day.

a much different mindset.

[bjl584]

Sitting in the waiting area of my CPA yesterday, there was a client in front of me telling her that she has $35K parked in an account earning 0.10% interest. She wanted to know if she could do any better.

[riverwed070707]

Between the two of us, we have quite a few investment accounts with traditional, Roth, rollover, and SEP IRAs, a 401k, a couple of brokerage accounts, etc. In several of those accounts, cash accumulates from interest and dividend payments and I am guilty of not paying enough attention to that cash. I sat down last week and checked every one of our accounts and found a total of over 150K sitting in cash. Now that's not quite as bad as it sounds since about 130K of that was in the Vanguard settlement fund earning 5.27% which is just fine. The rest, however, was at Schwab earning 0.45% in their crappy settlement fund. I went on today and moved that to their MMF that actually pays decent interest (5.18%) On 20K, that will earn us an extra $946 in a year.

There's nothing wrong with holding cash if it fits your needs and goals but make sure that cash is working for you. Despite the high rates we've been enjoying for a while now, there are still a lot of accounts out there paying next to nothing.

Why wouldn't you just set your interest and dividends to automatically reinvest? Is there a downside to that approach? That's how all of mine are set up

[riverwed070707]

In my Chase checking account I have a $25,000 balance which I know is only earning .01% interest or thereabouts. I should just keep the bare minimum or a few $1000 over but lazy. Now that you point out $20,000 would earn $946, I need to get myself to move it.

I've really come to loathe Chase. I don't recall how they roped me in initially, but I switched from US Bank to Chase for my business accounts a few years ago. I reached out to them a few months ago to inquire about a better savings/checking account with higher interest rates and they directed me to a JP Morgan wealth advisor I opened a new account at Capital One and moved over my excess savings and in 2 months its earned more interest than my Chase account had since I opened it. Only reason I'm not fully closing the chase accounts and switching is because Chase is my only local bank where I can go to pull cash when I need it and I'd need to find a replacement for that.

[bjl584]

Why wouldn't you just set your interest and dividends to automatically reinvest? Is there a downside to that approach? That's how all of mine are set up

The two main reasons to do that are to either live off the income that the securities are yielding or to let cash accumulate so you can buy other securities with it as opposed to having everything reinvest.

[disneysteve]

Why wouldn't you just set your interest and dividends to automatically reinvest? Is there a downside to that approach? That's how all of mine are set up

Our Schwab brokerage account holds our individual stocks. The dividend payments go into the settlement account. They can’t reinvest like a mutual fund.

We hold a lot of CDs and Treasuries at Vanguard and a few at Schwab also. When those pay interest and mature they pay out to the settlement accounts. Brokered CDs don’t compound like regular bank CDs.

In my inherited IRA I turned off reinvesting to allow cash to accumulate throughout the year which I then use for my RMD but I calculated my RMD the other day and had about 15K more cash already than I’d need and it’s only April so I needed to reinvest the excess.

I also recently made our 2023 Roth contributions so that was 15K in the settlement accounts that I just hadn’t invested yet.

Prior to retirement, reinvesting is definitely the way. Once you hit retirement though it’s common to stop reinvesting and use the interest, dividends, and capital gains for spending money.

[QuarterMillionMan]

I have some other cash amounts that I need to put to work.

Merrill Roth IRA cash $26,000 ($24,000 invested in a combination of TSLA, NVDA, SLV, etc)

Schwab $5000 cash ($22,000 invested), also $1000 in checking account w/Schwab but this is fine.

So that $26,000 + $5000 + $1000 all in cash I'll need to put to work as well. But I'm hesitant should the "correction" be forthcoming so I'm okay with letting that $32,000 sit on the sidelines. And should the correction come I'll have funds ready to buy equities on sale so to speak.

[disneysteve]

I have some other cash amounts that I need to put to work.

Merrill Roth IRA cash $26,000 ($24,000 invested in a combination of TSLA, NVDA, SLV, etc)

Schwab $5000 cash ($22,000 invested), also $1000 in checking account w/Schwab but this is fine.

So that $26,000 + $5000 + $1000 all in cash I'll need to put to work as well. But I'm hesitant should the "correction" be forthcoming so I'm okay with letting that $32,000 sit on the sidelines. And should the correction come I'll have funds ready to buy equities on sale so to speak.

When I say to make sure your cash is working for you, I don't necessarily mean investing it in stocks. Just moving it from an account paying 0.1% or0.45% to an account earning 5+% is a significant improvement. Or buy a CD or bond to lock in rates while they're still high. The Fed has said they expect to start lowering rates later this year. If you don't anticipate needing the cash, buying a 1 year or 2 or 3 year CD/Bond paying around 5% is going to look pretty sweet 6-9 months from now.

[disneysteve]

I just took care of another little bit of unattended cash. Our HSA, which is very small, has just been sitting in the cash account earning 0.1%. I just moved $1,000 into VMFXX which is earning 5.28% so that'll get us a few extra bucks. The good thing is that means the interest earned will now exceed the account maintenance fee. I didn't realize that until now the account has actually been losing money very slowly since it essentially earned no interest and the fee was decreasing the balance.