By

Allan Roth /

MoneyWatch/ May 15, 2012, 6:30 AM

Where to stash your cash today

Man holding a wallet with cash in it. iStockphoto
(MoneyWatch) If your cash is sitting in the bank earning a whopping 0.01 percent annual percentage yield (APY), now is the time to get it working harder for you. Without having to put it in stocks or even bonds, you can earn a bundle no matter what happens to interest rates. The secret is finding CDs that have two key ingredients: 

  • High interest rates
  • Low early withdrawal penalties

DepostAccounts.com just updated its search for such CDs, and founder Ken Tumin alerted me of the findings. Tumin noted that Ally Bank now has competition with Barclays' (BCS) new five-year CD. Barclays is paying 1.75 percent APY for a five-year CD with a three-month early withdrawal penalty. This is slightly higher than Ally Bank's 1.69 percent APY, though Ally has a two-month early withdrawal penalty.  

DepositAccounts.com

If you think either that rates are going up soon or that you may need the money in the next year or two, Ally is probably your best bet. Beyond three years, the other four options above are likely to do better. 

It's important to note that some financial institutions don't allow partial early withdrawals. The simple solution is to open multiple CDs.  For example, if you were going to stash $50,000, you could open up 10 $5,000 CDs. That way, if you needed $4,000 cash, you could just close one CD. 

Maximizing FDIC insurance
Stash your IRA cash
Credit union punishes members

In case you think these rates are hardly worth it, consider that the Ally CD will return the following, even if cancelled in one year:

  • $10,000 CD - $141 interest
  • $50,000 CD - $707 interest
  • $100,000 CD - $1,410 interest

To lean more about these CDs, see this post at DepositAccounts.com. When investing in a CD, remember to read the fine print, and be sure your financial institution doesn't reserve the right to retroactively change terms on your existing CD.

© 2012 CBS Interactive Inc.. All Rights Reserved.
  • Allan Roth On Twitter »

    View all articles by Allan Roth on CBS MoneyWatch »
    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

Popular on MoneyWatch

5 Comments Add a Comment
linkicon reporticon emailicon
MeyerConsult says:
Asuadvisor makes a great point. Advisors, such as mine, that are compensated on managed accounts (and excluding cash or CDs) indeed have a disincentive to recommend much cash in the asset allocation. While I consider my adviser highly ethical, this is a distortion to be aware of. I've noticed that my adviser thinks I'm holding too much cash (generally about 10% of all assets), is it because it's the wrong allocation or because of their compensation structure...makes you wonder. Allan this might be an interesting topic for you to explore, especially since holding some cash/CDs makes sense in this investing environment.
reply
linkicon reporticon emailicon
ibsteve2u says:
Be interesting to see a chart tracking average interest paid to the consumer vs. interest charged on consumer debt by the financial industry over the last 30 years.

Of course, you wouldn't want to include prime rate, the Federal Funds rate, and the Fed discount window in that chart...if you did, too many would begin to suspect a conspiracy to force the consumer into the stock market where it is both legal to fleece the consumer and where there is no taxpayer-backed entity such as the FDIC to relieve the consumer of the burden of other people's corruption.
reply
linkicon reporticon emailicon
Allan_Roth says:
Anyone can do fraud and overstating billable hours would be just that.

The penalty is deductible. I consider these CDs as having a "put" option to sell it back to the bank / credit union.
reply
linkicon reporticon emailicon
Allan_Roth says:
Anyone can do fraud and overstating billable hours would be just that.

The penalty is deductible. I consider these CDs as having a "put" option to sell it back to the bank / credit union.
reply
linkicon reporticon emailicon
Asuadvisor says:
I believe the penalty for an early withdrawal of savings is a deduction FOR AGI, so it is even more palatable.

As an advisor who charges an AUM fee it is not in my interest to have clients buy CD's as opposed to holding cash with me, since I won't make money on it. Although charging AUM normally aligns my clients interests with mine this is one of a few cases where it doesn't. For anyone working with an advisor in this manner be sure this conflict has been disclosed and is understood. While I'll say the overwhelming majority of advisors I know are very honest, this is one area I have noticed the most issues.

Just as Allan has said many times, when you are working with anyone professionally know how they make their money and what their insentives are. Don't be afraid to ask hard questions.

So be sure to ask Allan if he is overstating his billable hours. JK all accounts are that he is a good one.
reply