Comparison of Safe Money Vehicles

“Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.” (Proverbs 6:8)

Yesterday, we discussed what to look for and how to situate your Cash Reserve.  Today, let’s compare each of the most popular types of Savings vehicles that you could use for the Trunk of your Fruitful Tree.

We’ll give each a rating and description.  The following are not all possible forms of “Cash”, but are the most common and/or attractive.  We can discuss any others that you would like – just comment.  We’ll rate each on a scale of 0 to 5, 5 being the best rating.

Checking Accounts – typically held at a bank or credit union

Safety – (5) when held in an insured account FDIC or similar
Liquidity – (5) can be accessed via ATM card or a walk to your bank
Yield – (1) expect to earn little to nothing
Tax Benefits  – (0) none
Liability Protection – (0) none

Savings Accounts – typically held at a bank or credit union

Safety – (5) when held in an insured account FDIC or similar
Liquidity – (4) can quickly be made accessible online or by a walk to your bank
Yield – (2) pays something, but typically very little
Tax Benefits  – (0) none
Liability Protection – (0) none

Certificate of Deposit (CD) – lending money to a bank or CU for a set period of time.  The longer the time period, the higher the interest.  Penalties for taking your money early.

Safety – (4) Same FDIC or similar insurance, but higher risk of inflation damage
Liquidity – (1) Liquid only when mature, or with a penalty
Yield – (3)  Always a higher yield than checking and savings at the same bank.
Tax Benefits  – (1) Tax on interest when earned (could be deferred a couple years
Liability Protection – (0) none

Money Market (MM)
– Mutual Fund that invests in very short term instruments with the stated goal of maintaining an even Net Asset Value.

Safety – (3) NAV rarely falls, but it can (and has) happened
Liquidity – (3-4) depending on where it is held, can be liquidated relatively quickly
Yield – (3) Varies by institution, but you can often find a MM paying higher than CD’s
Tax Benefits  – (0) none
Liability Protection – (0) none

Life Insurance
– Cash Value whole life insurance with a strong mutual insurance company.

Safety – (4) Strong companies are far more fundamentally sound & reliable than the US Gov’t, but don’t own their own printing press to print more dollars
Liquidity – (3) Cash can be accessed in about a week
Yield – (5) Typically pays a higher yield than any other safe money vehicle
Tax Benefits  – (5) If used properly, you will never pay taxes on growth
Liability Protection – (5) in most states cannot be assaulted by creditors

We’ll discuss government sponsored retirement plans soon, but not now.  They aren’t in the same money category.  Unfortunately, most people fund such plans the way they should be funding their Cash Reserve.

Tomorrow, we’ll specifically address holding gold and other metals as a store of value.

Please let us know if you have any specific questions and post them as a comment so I can answer them.

This is _Part 4_ in the series titled The Trunk. To continue with this series, click on Pt 5.  To use this as a growth tool, please read Pt 1, Pt 2 and Pt 3.

Photo credit: zen

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