Revisiting Cash Savings for 2014
I’ve (finally!) had some time to sit down and examine our personal finances for the year. I generally agree with Leigh, who said she was done optimizing (although she backpedaled immediately!) and don’t like to worry so much about money anymore. However, we’ve had some major changes in our life, and it is time to re-optimize.
We have a fair amount of cash sitting around at about .75%, and we intend to continue to grow that number in hopes of amassing a 20% downpayment (and associated move-in costs) on a home that will likely be at least $600k. We are starting to familiarize ourselves with different areas and figure out what we need to be able to afford.
Our cash-flow should be enough to cover any likely emergencies, limiting our need to have cash on hand. We currently have approximately $75k in cash savings (not including approximately $15k in our checking accounts for spending or future transfers in savings). My plan is to dump all of this in a CD, which we intend to break after 12 months and could leave there as long as 2 years.
I did some quick CD rate comparisons using bank rate and a reader recommendation of Ally bank. Here is how the two compared:
The 4-year PenFed CD is the best option. (Ally recently changed their penalties for 5 year loans.) Let me know if you have another suggestion that can beat the APYs for 1 year and/or 18 months. Also let me know if you think my calculations see off. I used the spreadsheet from this post to compute the effective APY.
With that, I took a look at what we’d gain by being smarter with our money (and going through the hassle of opening another account).
- $75k deposited early this year
- PenFed 4 year CD broken early with 180 day penalty, 2.22% APY
- Compared to current .75 APY savings rate in high-yeild account
- Additional interest over 1 year: (1.13% APY) $289
- Additional interest earned over 18 months (1.5% APY): $850
- Additional interest earned over 2 years (1.68% APY) : $1,427
I’m assuming once you decided to break a CD, you can get your money in about a week. Does that sound correct?
I previously estimated we’d be able to save about $4,500 in cash each month, though I’m quite sure that was an optimistic assumption. I should have a real number after January. With that, I’m comfortable locking up $75k right now. I’m not sure how to handle the amount coming in, but I’ll initially put it in savings then perhaps start a second CD at the 6 month mark.
The only thing I think I’m “missing” is the fact that I still haven’t paid of my student loan of about $12k. On one hand, the rate is likely lower than our mortgage will be. On the other hand, it is obviously higher than the rate on our CDs. Anyone have any suggestions on how to think about that?
I’m going to come up with some 2014 goals, but I might wait until the end of January to figure out the exact numbers I’m targeting.
Happy New Year!