High yield account with no early withdrawal penalty

The new wife and I had a significant windfall when we went to do taxes together. We are doing quite well, house is payed for and only a few small loans with less than 3% interest.

Between our tax refund, her work bonus she got today, and the coop dividend I’ll be getting in a few weeks, we will have an extra $17,000 sitting around. We are gonna buy her a new tread mill for maybe a grand and then pay off my one credit card for $2750, other than that, we don’t see the need to have that much sitting in a low-yield savings or checking account.

We both have work sponsored 401k’s we heavily invest in.

We just got married, at age 27 and 24, and aren’t planning on trying to have kids for a year or so.

Someone had suggested to me that there is such an account we can put the money into that would have a much higher yield but there is no penalty for early withdrawal (in case of medical or other expenses).

Just think, the best no penalty CD’s are still under 2.5%, which is pathetic.

Does anyone know what I’m talking about? We’d be talking about $10,000-12,000.

Young, no immediate plans for the money, and want to be able to withdraw at any time? Consider investing in the stock market. Over time, it will likely do much better than a savings account. Don’t do individual stocks unless you have a lot of time for research. Instead, invest in an index-based fund which invests in a wide array of stocks all at once. A good index fund is one which is based on the S&P 500. Vanguard is a great place to get started. They offer index funds with very low expense ratios. If you instead invest through a financial advisor, you may not do as well since they take a certain percentage off the top and their ongoing expenses may be higher.

The recent stock market volatility can be unsettling, but if you think long term it can be a much better investment for you. Since you’re young and don’t need the money right away, you’re in a great position to try something with more risk with a higher reward.

And if you really don’t need the money for a long time, consider putting some of the money in a Roth IRA. That’s a retirement account, much like your 401k. You can also set that up yourself to save on the advisor fees.

How much less than 3% is the interest on the loans you’ll still have outstanding? Do you have an emergency fund for house repairs and such?

This. Pay off your credit card debt and use the remainder as an emergency fund. As suggested above, a mutual fund that parallels the S&P 500, plus a cash fund. I know many people who chase the eternal better interest rate horse, have limited to no debt and invest in 401(k) plans (as you are), but when something happens and they need cash now, are broke. Some cash should always be available and if this means it earns a pitiful amount in return, so be it. Many a multimillion dollar company (or family) has gone under even though they were assets rich, they were cash poor.

I’m generally always on the side of recommending equity as an investment, but if one criterion is that you want to be able to get access to your money at any time, then equity, i.e. stock, isn’t really a good choice. If you’re forced to sell at a bad time, you can suffer losses. The stock market does outperform pretty much everything else in the long run, it’s true, but it is more suitable for people who can afford to let their money rest for a while without having to sell at a disadvantageous moment.

I only had to break a CD early once, and I found the “penalty for early withdrawal” was minimal. Basically I lost a few months of the interest that had accumulated. (And at today’s rates, that’s not going to be very much anyhow.) Of course, breaking the CD to invest in my dotcom employer turned out to be a stupid idea, but that was my own damned fault. If you have a sufficiently important reason to need the money, go ahead and break the CD.

Sounds like using my Scottrade account to buy some mutual funds would be the way to go. Then I can sell them at any time. I actually have some money in one of those Vanguard funds from way back in 2006 that’s had some very comfortable returns (a lot better than and CD).

Thanks for the advice!

Go Roth IRA. As mentioned above, if you don’t have time to do research go the S&P 500 route with an Exchange Traded Fund. Roth IRA withdrawals have a number of penalty free options including illness, education funding for you or a family member, first time homebuyer, and a couple of others.

With a Roth IRA, can’t you always withdraw your contributions? I believe any of the special withdrawal options apply to the earnings. That is, say both of you put $10k in a Roth IRA today, and ten years from today it’s worth $20k. If you need the money, you can withdraw $10k for any reason with no penalty. Then, for various other specific purposes like buying a house, you can withdraw the whole $20k without any penalty.

As such, you can essentially use it for general savings that just happens to give you tax-free retirement money. That’s normally terrible advice, especially if the Roth IRA is your only retirement account. But since you’ve got another healthy retirement account, it’s not a terrible idea to take advantage of the Roth for non-retirement savings.

What might happen if the market sees another major drop as it did in 2008? Your mutual funds might lose fifty percent of their value. Long term, they’ll probably recover, but can you afford that? What if you lose your job at around the same time? Do you have some months of savings to live on?

No. One should get into the habit anything that goes into an IRA is a one-way ticket until retirement. If there is a concern for emergency funds, then set up an emergency fund, but leave any/all retirement funds alone.

Tough noogies. The OP is in his 20s. He can whether the storm. FWIW, I’m hoping for a major drop in the next 18 months. The market is way overvalued as it is (IMHO).

The OP mentioned wanting an account “with no early withdrawal penalty.” A mutual fund investment might very well have an early withdrawal penalty, in the form of market losses. He should be aware of that.

This do not compute. Investing in the stock market is incompatible with a desire to keep the money available at any moment. Yes, you can sell your share at any moment, but then you might have to sell them at a significant loss.

If by “weather the storm”, you mean that he can wait until the market recover, then that’s contradicting his intent to have access to the funds at any moment.

If you mean “take the loss since he’ll have all the rest of his life to save money”, then it’s contradicting his intent to get a nice yield out of his investment.

The stock market isn’t the answer to his question as formulated.

Or you might sell them for a significant gain. And chances are you won’t have to sell on a moment’s notice. Rarely does something come up where you have to immediately get all your cash together at once. Keep some money in a savings account for emergencies, but if you’re young and financially stable, you can afford to take more risks with your money to get better returns.

Especially with the situation in the OP (young, paid off house, both spouses working, little debt, $17000 in cash), there’s no need to be totally conservative. It is very unlikely they would need to cash out unexpectedly. And if the market was down and they needed money, one alternative could be to get a home equity loan.

kwc27, do you have health insurance through work? That would cover the bulk of your medical expenses.

Except the OP doesn’t have $17000 in cash. Once he and his wife buy the treadmill and pay off the credit card bill, they’ll have $10-12,000, which he’s proposing to invest in the market. He hasn’t said how much cash he has. And if there’s another downturn will he necessarily be able to get a home equity loan?

The OP doesn’t appear to be hurting for assets. He wants his cake and to eat it, too. Hasn’t been possible for several years. He should suck it up and put it into a liquid account at shitty interest as an emergency fund.

Open an account with anyone such as Charles Schwab. They are free and usually come with all kinds of investing tools.

Next go to any of a number of web sites that show dividend paying stocks. Look around a bit for one that suits you. AT&T, for instance, is currently paying 5.5%. There are a number of pretty solid companies out there paying in the 6-7% range.

The stock, of course, may go up or down but for established companies the dividend payments generally* stay the same or rise.

Higher returns always come with higher risk. Low returns are usually associated with low risk. For instance, in Sunday’s paper there was an article on German bonds that were paying a negative .23%. Yes that’s right, a guaranteed loss. But evidently Germany is going through a period of deflation of something above (or below I guess) -1%. So by buying the bond you keep your loss down and don’t have much other risk.

*Generally in this case meaning you’d be well advised to keep you eye on it, 'cause, you know, one just never knows.

These are all fair considerations, but they’re not the kind of advice the OP asked for. The OP wants a form of investment where they can withdraw money at any time without suffering a penalty. Whenever you invest in equity - be it shares, or ETFs, or actively managed funds -, you can, of course, sell at any time, but you run the risk of losses as a result of unfavourable market conditions at the time you sell. We do not know how important it is to the OP to have access to the money at any time, but the idea that this should be possible was stipulated in the question, so we cannot talk it away with arguments that come down to saying “No, you don’t need to have access to your money at any time.”

And the bottom line of all this? First, the OP needs to make up their mind as to what they actually want, i.e., what is important to them - liquidity (i.e., the ability to withdraw at any time without unacceptable losses), or yield. Of course it’s possible to balance these two with a middle ground halfway between extremes, but at the end of the day they are mutually conflicting objectives, and any investor should make a decision as to what matters to them, and then pick an investment that best achieves the desired objectives.

If you don’t have six months take home pay in liquid form you don’t have enough savings to consider investing in equities. First do that. Anything over and above that can go in a Vanguard index fund. I like VDAIX which is a dividend appreciation fund that has annual returns of 7,3% since the inception date of 2006.