at work i have direct deposit and it goes right to my savings but i would like to have it go into an account that gains interest. i know CD's are at 5%ish right now and do they have any savings accounts like this? that my check can be deposited to and then i can pull whatever money i need for monthly bills out. or maybe if it could direct deposit to the account and then that bank only keeps X amount of money per month and deposits the rest to my checking? please suggest something for me. how do you all do it? i want to gain interest and have X amount of money out of reach every month.
WIthout going into too much detail or promoting specific companies, many banks offer "sweep accounts" to accomplish your goal. At the close of every business day, the remaining account balance is "swept" into an interest bearing account. Many sweep accounts require high minimum balances however and are geared more towards businesses.
Alternatively, many brokerage firms now offer money market accounts from which you have check writing ability. I can't speak for every brokerage Co., but some charge flat fees (check issuance, monthly fees, etc) that will eat into interest earnings. My local bank, on the other hand, charges no fees and checks are only half the costs of those charged by my brokerage firm. Online brokers/banks often tend to be slower than brick-and-mortar banks in regards to common processes and therefore require more attention to budgeting. If you for some reason needed your entire account liquidated, and in cash, in a hurry this could only be accomplished at a physical institution.
You could start by asking your local banks and by searching the online brokerage houses. Just remember, it doesn't do any good to pay $2 in fees to make $1 in interest and then get slapped with a 1099-int to boot.
There are any number of financial companies that offer money-market accounts that you can link to your bank account.
I am personally familiar with Vanguard, having been a customer of theirs for more than 10 years, so I'll outline how their setup works. This is from memory, so you should consult
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for definitive information. I am quite sure that other companies such as Fidelity offer similar services, but I don't know what they are.
For a minimum initial investment of $3,000, you can open a money-market account. These accounts pay interest monthly, based on your average daily balance, and are currently paying about 5%. If your balance falls below $2,500, they charge $10/year for account maintenance. If it falls below $500, they may close the account and send you a check.
Once you have the account, you can write checks on the account. There is no charge to write checks (and even the checks are free), but each check must be for $250 or more.
You can set things up so that you can transfer money between this account and your bank account electronically in either direction. There is no charge for the transfers, but they take two business days to happen, and there is a $100 minimum per transfer. If you transfer money *to* Vanguard, you can't withdraw it for 10 days, but it earns interest during that period. Of course, you can still withdraw other money in your account during the waiting period.
You can also arrange for your direct deposit to go directly into your Vanguard account, and then transfer to your bank account as needed. You can also cause transfers to happen on a regular schedule.
You can do just about anything you want with your account over the web. For that matter, you can sign up for the account over the web (though you probably have to print out some forms and mail them in so that they have a paper signature). For more information, I suggest you check out
wow you guys are great. thanks for all the quick answers. ill check out vanguard. that sounds exactly like what i want. are all money market accounts like this? also is vanguard insured? i dont wanna lose any money. you said 5% payed per month. is that 5% yearly payed in monthly increments, or 5% per month?
You could also look into a mutual fund account with an automatic investment option. The firm I work for can open these with $50.00 and $25.00 per month. As for FDIC, these type of investments are not FDIC insured, but my personal opinion is that FDIC insurance is dinosaur best left in the depression years. And I used to work for a bank, so if you did make a claim, I have seen how very long it can take before your ever get close to getting your money back. Some of my former bank clients had accounts with banks that had dissolved DECADES ago and still haven't seen cent one.
FWIW, ETrade has an associated bank (while transfers and such are allowed between it and ETrade Securities accounts, it's a separate entity). ETrade Banks's "Complete Savings" account is currently paying 5.05% APY with no minimums. Also FDIC insured. One links such an account to one's checking account for electronic transfers (just like ING Direct or VirtualBank).
However, one of their accounts (the Treasury Money Market Fund, VMPXX) "invests solely in high-quality, short-term money market securities whose interest and principal payments are backed by the full faith and credit of the U.S. government" (quote from the Vanguard website). Frankly, I suspect that if those securities to fail, FDIC insurance wouldn't be worth much either :-) But you should make up your own mind about that.
The current interest rate on that fund is 4.85% per year, paid monthly based on your daily balance. That is, each month, they average what your balance was during that month and pay you approximately 0.404% (4.85%/12) of that average. Some of their other funds pay slightly more, but are slightly riskier because they're not backed by full faith and credit. One advantage of VMPXX is that its interest may be exempt from state income tax (though not from federal tax).
I don't know how other companies' money-market accounts work -- I've been a Vanguard customer for 10 years and have seen no need to look elsewhere. I'm sure there are plenty of other people with similarly good experiences with other companies; I just don't have any personal experience with them.
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