Investing Medium Balances

I’ve been working full time since June, and am now starting to pile up a substantial sum in my bank account. But it’s just been sitting there in Checking getting eaten away by inflation.

Here are the ways I’ve found to enhance savings at these types of figures:

401k

The very first thing you should do is take advantage of your company’s 401k matching. Contribute the maximum that your company will match for. Several reasons to do so:

Free money from your company – why wouldn’t you?
Reduces your taxable income – given the bracketed nature of our tax code, you’ll be removing money from the highest bracket you’re taxed at.
You can always borrow against your 401k in hardship – it’s not very advantageous to do so, but not the worst. The interest you pay for the loan against yourself goes to yourself – however, you have to pay back the loan with after-tax money.

After-tax Investment

Bank of America offers a self-directed brokerage account (https://www.baisidirect.com). They’re “powered” by Merrill Lynch.

You can buy no-load, no-fee mutual funds without paying commission.
$50 semi-annual maintenance fee unless you have a checking account with them.
They do 30 free equity (stock & exchange traded fund) trades if you have $25k deposited in their checking, saving, CD type accounts (non-investment).
$75 “Full account transfer” fee – that is, if you want to close your account. Yes, it’s as lame as it sounds.
Website constantly crashes all the Flash on my browser – as well as slow.

Wells Fargo offers something similar with these differences.

$50 fee unless you have it linked to a PMA account.
100 commission-free equity trades per year if linked to PMA.
As you can see, you basically need to have a PMA account to make it worthwhile. You can have a PMA account without fees if you have a total of $25k (checking and invested) with WF. This is different than BofA which requires you to park the money in a shitty savings, MMF, or CD account.
Website is fast, doesn’t have shitty Flash everywhere.
Personal banking portion of website integrated with investing.

In conclusion, WF seems overall better if you have >$25k. The better website, I think, is an important distinction. I’m currently using Bank of America.

P2P Lending

This is rather novel and unproven – but it does promise higher yields. Read: (http://en.wikipedia.org/wiki/Person-to-person_lending). Essentially you lend money to other users of the website, but do so it pools to reduce risk from individual default. There are two main companies for this in America – Prosper, and Lending Club. Prosper has recently undergone some issues, so I can’t recommend them in any way.

Lending Club claims an average annualized return of 9.67%. They’re totally legit in that they’re completely registered with the SEC and everything – and claims that they have another company lined up to take over loan administration if they go under. I won’t pretend that they aren’t somewhat risky though. I definitely wanted to try them – but they wouldn’t let me join – because I don’t have a credit record!

Credit Cards

That’s right, I’ve never borrowed money, so I have no credit history. Moreover, Bank of America (my current bank), won’t even give me a credit card (at least not one without an annual fee). Given that I have a job and savings, this boggles my mind.

I’ve talked to Wells Fargo, and they said they’d likely approve an account if I opened a checking account and applied for a college credit card (I’m a registered grad student). Apparently companies are more likely to give college students a credit card as it’s expected they have no credit record and their parents are likely to bail them out. Stupid, but so is the world.

That being said, paying interest on credit cards while you have any cash at all is retarded. I’m going to try to get a credit card with cashback (1% is typical). That effectively allows earning “interest” on the “float” portion of your assets you have to keep liquid for everyday spending.

Bank of America Keep the Change

Finally, Bank of America has a Keep the Change deal going on now, where they will automatically round off check card transactions and transfer the extra to your savings account, with 100% matching for the first 3 months.

For typical purchases of around $20, that’s effectively 2.5% “interest” that’s earned over a day. That is, a ridiculously good return. It’s free money.

Conclusion

Apparently, I’ve become a total metaphoric Jew. My actual Jewish friends (with the exception of one), are actually rather free spending and generous.