Twenty Something Sense

Eric is back again this week for his second (of many to come) guest post. Although last weeks post about how to keep your mouth cool was an entertaining piece, this week Eric has decided to get serious and focus on helping everyone find some FREE MONEY.

FREE MONEY, Seriously
by Eric Harbach

I try hard to save and invest, but I can’t invest all of my money because I need to keep some extra cash on hand to pay for my daily expenses and any unexpected expenses that might pop up. For obvious reasons I don’t want to have to sell stock every time my car breaks down or the dentist tells me he’s going to need to do some work with the drill.

When I started work after college I did what most people do and opened a checking account at my local bank with direct deposit for my paycheck. I used this account to cover all of my daily expenses and I also opened up a savings account for my unexpected expenses. I didn’t want to keep all of my money in a checking account because I thought that a savings account had a better interest rate.

After a few months I noticed that my savings account was not generating much of a return. My monthly statements showed me accumulating just pennies on the several thousand dollars I had sitting in my savings account. I did some investigating and discovered that I was being taken advantage of by my bank - they were only paying me 0.1% interest on my savings account.

Looking for a better place to stash my cash, I did some research and came across an alternative to traditional savings accounts called money market funds. A money market fund is the most conservative type of mutual fund whose goal is to maintain your principle in full while providing income to you at the same time. Currently vanguard’s primary money market fund offers you 2.33% interest and historically it has averaged over double that (the interest it pays you fluctuates with current interest rates and right now interest rates are very low). This account connects to your checking account and offers free electronic transfers in and out which makes it very convenient to use. Also, it is a safe place to keep your money, in the last thirty years there has only been two occasions where people lost some of their principal and these were both very odd and rare occurrences that are very unlikely to happen to you. For all intensive purposes, a money market fund is just as safe as a bank savings account.

So how much money are you leaving on the table because your rainy day money is currently sitting in a bank savings account with essentially no yield? Well, assuming you stock away $5,000 and a money market fund on average would return 4.0%, that is $200 of free money every year. Compound that over a 40 year duration and you’ve missed out on $24,000.

Take a few minutes today and lookup how much interest you are being paid on your rainy day fund. Make sure you are not missing out on FREE MONEY.