Came Into a Little Money, Help Me Please

acoustix · #1 08-21-2006, 02:19 PM

I have very fortunately come into $5k and I was wondering what the best option for investing some of it may be. Because I'm younger (25) and getting married, I'd like whatever I do to be low risk, higher yield, and short term.

What I was going to do was put 2K into my savings, 1.5k into remodeling my kitchen, and 1.5k into a cd. Then I checked what a 36 month 1.5k cd gets me. It isn't much. Maybe I researched it wrong, but it looks like with 5.13% (the highest rate I could find from the banks around here) over a 3 year cd, I would only make a couple hundred off my initial investment. Is this correct?

Is just investing most of it into my home a better option? We just bought this house a few months ago, and are planning on fixing it up and selling for a profit (hopefully) in a couple years. Is this a more viable option than any bank investment at this point?

I am truly clueless when it comes to this stuff, and this money is important to me and my wife's future. Any suggestions or pointers you guys can offer me would be most appreciated. Thanks in advance.

adenosine · #2 08-21-2006, 03:12 PM

Your local banks are probably not going to give you the best CD rates. You can get a better rate than 5.13% APY with an Emmigrant Direct savings account (5.15%), and suffer no loss of liquidity that you'd get with a CD. I sure hope you aren't putting money into a savings account with less than 5% APY.

Check bankrate.com to get the best rates out there. You can search by the term of the CD and see who is offering the best interest. They also have many calculators including one to determine how much your CD will earn:

http://www.bankrate.com/brm/calc/cdc/CertDeposit.asp

It seems odd to me that you'd want to put your money into your house or a cash investment. Those are very different options as far as liquidity is concerned! Do you have an IRA yet, or debts (car loans, etc) that could be paid off?

acoustix · #3 08-21-2006, 03:30 PM

I have a car loan, but at this point 5k wouldn't do a whole lot to put a dent in it. I can afford my bills with what I make from my job, but this 5k is a bit of a windfall for me and my fiancee. We were more hoping to use it to start building a nest egg more than anything.

The cd was the recommendation of family and the house idea was more my idea. That is why the ideas are so different. I figure that building some equity in my house would be a great way to get a good return on my investment, but with the market in it's current state, I don't know if now is the best time. It'll likely be a very long time until I get such a large sum of money all at once, so I want to make sure I don't squander it and look back regretting it, you know?

I do not have an IRA as I have no idea how they work really and don't understand the literature that is available online about them. I'm basically an idiot when it comes to finance.

adenosine · #4 08-21-2006, 03:44 PM

Why not pay down debt first? If you have a very low interest rate loan (less than the amount you would make investing) it makes sense to invest the money. If you're not going to get better returns on your money than you are paying in interest, there is no reason not to pay down the debt.

The difference can be calculated here (there seems to be a bug where it doesn't believe you can have a 0% state income tax with this):

http://www.wachovia.com/wealth/calc/debt

I recently got a bonus from work, and it was hard taking that money and using it soley to pay off debts, but it was what got the most value.

If you want to build a nest egg, can you buy into a 401(k) plan? If your company does provide matching funds with a 401(k), then your return on putting money into it (up to the match limit) is 100%! What better investment could you make than that?

john kane · #5 08-21-2006, 04:22 PM

since your not married yet, $5K on strippers and whores

RikaKazak · #6 08-21-2006, 07:44 PM

1.) pay of credit cards, if payed of move to 2

2.) get a tax deferred some sort of retirment going (IRA or 401K or whatever your work has for you...that is if they have something which they most likely do)...$5K at 25 would be great to start something like that with

Sciolist · #7 08-22-2006, 11:15 AM

You're likely paying > 5% on your credit cards or car loan if you have ourstanding balances on both, so it's better EV to pay them off rather than invest.

If you're paying < 5% on these things, get bigger loans and invest that :]

Badger · #8 08-22-2006, 11:22 AM

[ QUOTE ]
1.) pay of credit cards, if payed of move to 2

2.) get a tax deferred some sort of retirment going (IRA or 401K or whatever your work has for you...that is if they have something which they most likely do)...$5K at 25 would be great to start something like that with

[/ QUOTE ]

A non tax-deferred Roth IRA is often a good idea too. This does nothing for short term returns however. I'm not sure what the terms are exactly, but I think that it's fairly easy to take the principal back to pay for things like a house, much like you can with a 401k.

acoustix · #9 08-24-2006, 09:55 AM

What is the catch with the Emigrant savings account? It seems almost too good to be true. How are they able to offer such a high rate when my former bank could only offer ~1%? Do you guys have any experience with them?

Again, I'm an idiot when it comes to stuff like this.

adenosine · #10 08-24-2006, 12:13 PM

The catch is that they don't have any locations. They don't have any ATMs either. Almost everything you ever do with the account will be done via computer, which allows them to keep overhead very low.

This concept isn't entirely unique. Citi is offering a high yield online savings, so is Capital One, ING Direct and others. They are able to get quite a bit of cash to lend out this way, because most banks offer terrible rates. My couch collects more interest than my BoA savings account did (.6%!).