Where to Stash Your Cash

Where to Stash Your Cash

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Every dollar of yours is like an employee.

If you let them sit around and do nothing, it will hurt your business.

If you “employ” them, which means to put to work or make use of, it will benefit your company.

Is every dollar of yours benefiting your personal finances or are there lazy dollars sitting around doing nothing for you?

Where Should You Stash Cash?

Here are 5 places to stash your cash for goals that are 1 to 5 years away to get the maximum value from each of your little green employees. 

Depending on your financial goals, where you stash your cash will determine if you reach those goals.

If you plan to spend the money within 1 year, be safe! If you plan to spend it in 1 to 5 years, go for a higher rate of return.

Where I save my money depends on the goal.

I’m willing to invest my savings for something like a vacation fund because the cost of a vacation varies and when we go is flexible. On the other hand, if I’m going to put money down on a house soon I don’t want to lose any of that money.

Read: I Don’t Know How To Invest & I’m Scared I’ll Make a Mistake

Short-Term vs. Long-Term Goals

Let’s use three examples of goals:

  1. Saving for a vacation
  2. A down payment on a house
  3. And building an emergency fund

Using these three examples, where is the best place to stash your cash if your goal is 1 to 5 years out for each of these?

When it comes to long-term goals, like saving for retirement, we need to take a look at other options. 

Here are 5 places you can stash your cash. Some are better than others.

1. Under Your Mattress

Some people suggest you keep cash somewhere in your house. Other than the internet disappearing or banks seizing to exist, it doesn’t do you good to have cash under your mattress because those are lazy dollars that need to wake up!

Some people like cash because it’s tangible. If you’re new to budgeting or teaching your kids to manage money, using cash is powerful! 

Cash is good for teaching. It’s a powerful tool because you can hold it and feel it. And let’s be honest who doesn’t love holding a wad of cash!? 

But cash is becoming obsolete. We live in a world where money is more of an abstract idea than a physical object. 

Cash is good for changing behavior. I used cash for years as a teenager to manage my money. Now, I don’t have more than $5 – $10 of cash on me unless I am traveling (thieves wouldn’t be happy to rob me). 

If you struggle with spending, cash is harder to spend than swiping a card. According to a study, people spend 17% more money when using a credit card than if they were to use cash. 

Other than for behavior change or teaching purposes, I think you’re better off doing something else with your dollars then leaving them in cold hard cash.

2. Your Savings Account

My bank is my central hub for my money and everything else flows from it. This allows me to transfer money easily to savings, investments, or paying bills.

The best part is I can track exactly where I spend my money unlike using cash using a free budgeting app.

Some people don’t like having their money sit in a savings account because most banks pay an interest rate of 0.000Nothing%.

I don’t blame them with the average interest rate on savings being 0.06%. But, having money in your savings accounts could be good for a few reasons: 

  • Liquidity – It’s easy to get to when you need it
  • Security – Your money is FDIC insured up to $250,000
  • Safety – Essentially no risk (except for one major risk below)

Although the peace of mind of having your money in a savings account is nice, you run a risk leaving it there.

That risk is called purchasing power risk.

$100 today will buy you less in 10 years because of inflation. Inflation can fall between 2-4% per year.

So if you’re not earning at least enough interest to keep up with inflation, the value of your dollar decreases over time.

It’s not a good idea to leave too much money in a savings account for a long period of time.

Where to stash your cash | Simplifinances

3. A High-Yield Online Savings Account

Many online banks now are willing to pay a higher interest rate to keep up with inflation.

Online banks have lower overhead costs because they don’t have to pay for physical branches. That means they can pass the savings to the consumer by offering higher rates.

The interest rate is important when you’re looking for a place to keep your money, but it’s not the most important thing.

Other things to consider are:

  • Your savings rate
  • The credibility of the bank
  • Terms and conditions

One of the downsides of a high-yield savings account is not having all of your money in one place.

If you need to transfer money into your primary bank quickly it could take a couple of days.

Don’t put your everyday spending money in one of these accounts.

High-yield online savings accounts are actually one of my favorite places to stash cash. I’ve looked into savings accounts that offer up to 3% APY (Annual Percentage Yield) which is changing all the time.

As of May 2020, the high-yield online savings bank that I use is offering up to 2.80% on cash deposits. The bank I’ve used for high-yield savings is Varo Money.

Banks vs. Credit Unions

When deciding where to stash your cash, should you use a bank or a credit union? There are pros and cons to both.

Banks are for-profit enterprises, while credit unions are nonprofits. Credit unions also offer higher interest rates on deposits, lower rates on loans and lower fees.

Why Choose a Bank?

  • More branches in the region or across the country
  • Typically quicker to roll out new apps and new tech

Why Choose a Credit Union?

  • Typically has lower fees and higher interest rates on deposits
  • Emphasis on customer service

I go for the best of both worlds and use USAA for my personal banking and Wells Fargo for my business banking. I’m happy with USAA and would recommend them to anyone (you must be a service member or be related to one to access their banking).

Think of it as an online credit union with low fees, great customer service, and always at the front of technology. They were the first bank to introduce biometric sign in. I was using my face to log in to my account back in 2014.

Although I’m happy with USAA as my primary bank, I’m always looking for an online bank that’s going to offer a higher APY for savings.

4. A Money Market Account (MMA)

Money market accounts are federally insured short-term interest-bearing instruments that generate a variable yield while preserving principal.

They tend to have interest rates that are higher than savings accounts, but they often require a higher minimum deposit.

The difference between a savings account and an MMA is what the bank can do with your money.

The bank is restricted in how they can loan your money. With an MMA the bank may put your money in a CD, low-risk mutual fund, or government securities.

It’s easy to confuse an online bank that offers a high-yield savings and a bank/investment company offering money market accounts because sometimes they are used interchangeably.

Many people have an MMA already and don’t realize it. That’s because in your investment account there is typically cash waiting to be invested that is stored in an MMA. For example, I have cash sitting in my Vanguard account when I don’t have enough money to purchase an entire share of VTI in my Roth IRA.

I wouldn’t be too concerned about these accounts for your goals. 

5. A Certificate of Deposit (CD)

A certificate of deposit (CD) acts as a savings account and has a fixed interest rate.

It also has a fixed date of withdrawal, known as the maturity date.

I call these Certificates of Depression. 😁

Why would I do that? Because, if you want to invest your money for the long run, the interest rate is measly.

Although it’s higher than a typical savings account or money market account, your money is going to be locked up for a period of time. For example, at my local credit union the terms of a CD are:

  • 2.00% 1-year CD 
  • 2.50% 4-year CD
  • 3.15% 5-year CD

That means you can’t touch your money for 1,4, or 5 years to earn that percentage rate.

I don’t use CDs anymore because I had a bad experience in the past.

Here’s what happened.

I deposited $5,000 into a 2.5 year CD when I was 19. After 2 years, I’d made $50!

But unfortunately, my car broke down and I needed to access the money early.

I had to pay a $25 fee. Eating 50% of my profit. Then, I had to pay taxes on that $50 which was $7.50.

So my $50 return went to $17.50 which is a 0.0035% return.

Basically the same as if I would have left it in the bank. 😢

I could have planned better. I could have found a better CD and accessing the money early wasn’t smart. But, either way, I’m not a fan of CDs.

I want control over my money and I’m willing to take more risk if I’m going to be saving that money for a few years. 

However, CDs seem to fit some people very well and there are many reasons why they may make sense for you. Something that seems to be effective with CDs is called a CD ladder.

How it works is, you open multiple CDs to have access to your money at different times in the future without locking all of your money into one long-term account. Then you’re able to access certain amounts at different times because your CDs are maturing.

I still think there are better places to stash your cash.

The Bottom Line

To be honest, I stash my cash in two places. I use traditional savings accounts at USAA and one online high-yield savings account at Varo Money.

Then, if I’m putting money away for retirement or for goals more than 3-5 years away, I contribute to my Roth IRA at Vanguard or purchase individual stocks or cryptocurrency with Robinhood. Very carefully.

I’ve made my fair share of investing mistakes.

Read: Investing Mistakes I’ve Made With a Roth IRA

These are simply a few ways you can employ your dollars and stash your cash. But, more important than getting the highest interest on your savings is how much money you save. 

If you’re having trouble saving money I recommend you set it up automatically.

You can set this up with your bank or you could use a tool like Qapital or Digit to do it automatically for you. They don’t have a high APY but they can help you consistently save.

I love personal finance technology that helps change behavior!

Where do you stash your cash!?

Don’t Like To Use Cash to Manage Your Money? Try This…

Don’t Like To Use Cash to Manage Your Money? Try This…

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After learning about the money jars system that I teach, I get a few who say, “I like the idea of dividing my money up into different jars but I don’t like to use cash.“

I’m not a big fan of using cash either. To be honest, I don’t use cash.

After the first two years of using cash to manage my money, I changed my jars to online jars.

When I was 18 years old, I opened up a couple of bank accounts—actually, it was 6 to be exact. This alone has been extremely effective in helping me reach my goals.

The banker was probably like, “what is this 18-year old doing opening up a bunch of bank accounts? This can’t be good.”

Here’s why I have multiple online bank accounts and how you can get started. 

OPEN ONE CHECKING ACCOUNT

I encourage you to start out using actual jars—even if you don’t like using cash. You can get started dividing up $100 or less.

Physically dividing up cash is very powerful.

Related: Where to Stash Your Cash

I also encourage you to get the jars if you have kids to teach them how to be smart with money.

This is such a simple thing to teach your kids that when they understand it, you’ll be doing a great job as a parent raising money-savvy kids. 

After you’ve mastered the physical jars, go to your bank and open up a checking account. I imagine most of you reading this will already have a checking account so you really don’t need to do anything here.

Unless you need to change your bank.

OPEN FIVE SAVINGS ACCOUNTS

If you don’t like using cash, it’s time to transition everything online. And you need at least five savings accounts (not checking accounts).

Most people only have one savings account, so you’re most likely going to have to do some work here.

Once those are set up, divide the money up into the bank accounts just like you would the jars. You’re WAY less likely to transfer the money out of your savings account and spending it than you would if the funds were sitting in your checking account. 

Most people are terrible savers because they try to keep a running tab in their head and then at the end of the month they tell themselves that whatever is leftover they will transfer it to savings. And guess which account never grows? Yep, you guessed it. You have to learn how to pay yourself first!

It’s important to note that legally you cannot treat a savings account as a checking account. Federal law prohibits you from withdrawing from a savings account more than six times in one month. So if you transfer the money into a savings account, don’t be buying stuff out of that account. 

Think of your checking account like the hub and everything else stems from it.

The checking account is like the trunk of a tree and the savings accounts are like branches. Your money comes into your checking account and the first thing you do is divide 10% here and 10% there.

I’ve never run into an issue of having to withdraw money from a savings account more than six times in one month. But it’s worth mentioning.

Don't Like to Use Cash? | Simplifinances

FIND A BANK THAT DOESN’T CHARGE FEES

This next idea is essential!

If you have a bank that will let you open five savings accounts with no problems, you’ve got a great bank.

But, if you’re bank tells you, “sorry, we’re going to have to charge you to open up more than one bank,” I want you to switch banks.

What you might be thinking:

“First Scott tells me to use this budgeting system for the rest of my life, and now he’s telling me I need to change banks, is this guy crazy?”

Yes, most of the “BIG” banks; Wells Fargo, Chase, Bank of America, etc. may charge you additional fees for having additional savings accounts if you don’t maintain a minimum balance, or set up automatic transfers. 

I HATE paying fees!

You should never have to pay a fee for having a savings account. The interest rate on savings accounts are already horrific. 

If you have to talk to your bank, here’s your script when you go to sit down with your banker and they tell you they have to charge you a fee for more than one savings account: 

Mr. Banker: We will have to charge you a fee for more than one savings account.

You: Thank you mister banker, but it’s important that I have five savings accounts and pay no fees. A bank down the road said they would do it so I guess I will have to take my business there. 

Mr. Banker: I will see what I can do.

THE BANK WANTS YOUR BUSINESS

The bank wants to keep your business. And I know they will wave the fees in many cases.

But, if they say, “sorry we cannot change that,” I promise there are hundreds of other banks that will. I’ve never heard of a credit union not willing to do that for you. 

I asked my credit union how many bank accounts I could open without paying fees, and they said, “as many as you would like.”

I said, “really?”

She said, “yup, we have a customer who has 63 bank accounts with us and that’s totally fine.”

My bank is USAA and I’ve had a great experience paying no fees and having multiple savings accounts with them.

I would highly encourage you to open your accounts with them if you qualify. Most people don’t unless you or a family member is or has been in the military.

The bottom line is DO NOT PAY FEES. 

THIS WORKS IF YOU SPEND LESS

I already know many of you are thinking, “this isn’t possible in my situation because I don’t make enough money.” You can read ways to make more money here.

However, the most overlooked way to make this system work is by spending less. 

If you’re serious about financial independence, not only do you need to make more money, you need to keep as much of it in your wallet as possible!

We’re constantly bombarded with marketing messages telling us we need to spend money to be happy.

This is NOT true!

Live simply and be grateful for what you have and you’ll be amazed how much you can save. 

Read: 8 Ways Minimalism and Personal Finance Are Related

People only spend less when they have to. Be content with what you have and look for ways to save money, you can make this system work. 

So, if you don’t like to use cash to manage your money, I recommend you create multiple online accounts.

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