After months of attempting to transfer funds from the sale of our house from PNG to the USA, we finally were able to get the first batch of funds transferred into our US bank account. Since we’re currently very content renters, we’ve decided to delay buying a house. We may wait four months, or we may wait four years. We have no idea, and we love the flexibility renting offers.
However, now that we’ve got the funds, it is time to decide the best place to park the money.
Preliminary Questions Before Deciding Where to Put a Lump Sum of Cash
1. How long will it be until you need the funds?
The longer it is till you need the funds, the less liquid (easy to access) your funds will need to be.
2. What is your risk tolerance on this batch of funds?
I have a very high risk tolerance when it comes to my investments for retirement. However, my risk tolerance on this money is completely different. This is money that I suspect we’ll want to access in the next few years to purchase a house. For that reason, I’m not willing to take very much risk with these funds. That’s why I’m simply trying to find somewhere reasonable to park the funds.
Low Risk Options for a Lump Sum of Cash
1. Local Bank or Credit Union Savings or Checking Account
Depending on your local region, there might be a promotion that is worth your consideration.
For example, in Cheyenne there is a credit union that offers 3.01% on up to $15,000 as long as you meet a few criteria like using your debit card 10 times a month. Bank savings rates right now are actually very meager.
By the way, there was a time when people suggested these types of funds should go into a money market account. However, these days you can typically do as well or better with a savings account.
2. Bank Direct
This option might only seem appealing to to an airlines mileage fanatic like myself.
Bank Direct has a checking account with a $12 per month fee. Instead of interest, the account gives 100 American Airlines miles per $1,000 in your account.
Because of the $12 fee, there is obviously a breaking point where this might not make sense. If a person was looking to park $25,000, then they would earn 2,500 miles each month. I very conservatively estimate the value of AAdvantage miles at a penny each. This means a person might make out with $13 worth of miles at the end of the month ($25 value -$12 fee). However, if the number is larger, the value increases.
Personally, I usually get between 2-5 cents value per American Airlines mile.
A person with $100,000 to park could end up getting 10,000 AAdvantage miles per month. Each year they would end up with 120,000 miles which would allow them to travel in business class to several countries around the world.
If you’re interested in learning more about Bank Direct and learning how to get a referral email for bonus miles, you can read my full review here.
3. Promotion Hunting
There are several financial institutions that run lucrative promotions for people who open accounts with large sums of money or who transfer in large sums of money. It could be beneficial to transfer your dollars from institution to institution to take advantage of these types of promotions.
I think organizations like ShareBuilder, Lending Club, and Fidelity have run some of these types of promotions.
- I have a referral link for Lending Club where you can get $100 if you invest $2,500 or more. If you want the link, just email mhforc at gmail dot com to request one.
- Fidelity will give you 15,000 AAdvantage miles when you open a new non-retirement account with $25,000 or more. You don’t need to invest in anything unless you want to.
- With ShareBuilder, you can get $50 for investing $2,000 or more.
Though this approach may take time, you’ll find that you can make some pretty good returns by taking advantage of different limited time bonus opportunities.
4. Lending Club
With Lending Club you might take on more risk than the other options above, but you also have a lot more opportunity for gains.
Over the last two or three years, my wife and I have had a very minimal amount investing in Lending Club (I think around $100). Our returns over that time period have been 10.94%.
The biggest draw back is that most funds in Lending Club are usually for a minimum of 36 months. Thus, this is a different type of investment than the others, but it is still appealing.
I’ll be honest that I don’t know much about bonds, but they do seem to be a reasonable option for people considering a low risk investing option. They seem to be a better investment than CDs which currently are offering very low returns (about 1% for a one year CD). Personally, I’d consider some type of an ETF that tracks several different types of bonds.
However, before considering bonds, I suggest you do some basic research. For investing advice, I usually look to Sound Mind Investing. I find they consistently provide some of the most helpful investing information for Christians. Here are a couple of helpful articles on bonds:
In my case, I’m going to diversify with three of the options above:
- I’ll park a good portion of the funds with Bank Direct. When booking mileage flights, I tend to maximize the miles to get several cents value out of each mile. As a result, this is the best possible guaranteed return I can find.
- Lending Club. I think we’ll take a sliver of the money and go ahead and do some Lending Club investing with the money.
- Bonds. Another sliver will go into bonds.
Of course, if I come across some good promotions, I’ll probably take the time to park some money in these different places. As with most types of investing, I think diversification is a great way to invest in anything – long term/short term, high risk/low risk.
What other low risk options do you know about for a lump sum of cash?