Little Things Can Make a Big Difference

I hold too much cash.  16% of my invested assets and 13% of my spendable net worth is sitting in cash.  Over five years of my expenses.  Not the smartest thing because it will lose value to inflation.  But it helps me sleep at night.

My drawdown plan says if the stock market is 10% below the 10 year high I’ll be spending that cash to support myself.  Right now, I’m selling mutual funds for that.

I hold cash because I don’t like bonds right now.  This “safe” investment has a lot of risk for which we don’t get rewarded.  As interest rates go up, and they will, the value of the bonds will go down.  I accept a lot of risk in my stock portfolio because the upside warrants the risk.  I won’t accept risk in a bond portfolio when they aren’t paying me enough to do so.

So my cash was plugging away earning 1.3%.  Inflation in my area is running at 3.1%.  I was losing 1.8% of value each year.  Too much.

I started investigating CD rates on and  Their best five year CD rates are 2.35%.  Even better, a bank I currently have a money market account with is also offering 2.35%.

With CD’s, there’s a penalty for early withdrawal.  It’s generally expressed in terms of the period of time you will lose interest.  At my bank, a CD of more than a year has a 180 day interest penalty.  They take away six months of your interest earnings if you take out the money early.

In the past, I didn’t want to lock my money up in a CD because we may buy an RV or the stock market may tank and I’ll need that money to support myself.  But if I buy a CD, am I really locking that money up?  Or should I just look at the early withdrawal penalty in terms of a breakeven point?

I can leave my money in a money market account earning 1.3% or I can move it to a five year CD and earn 2.35%.  The difference on $99,000 is $1,039 a year, or $86 a month.  This is a significant amount of money to me.

So I calculated the breakeven point.  As long as I keep the money in the CD for at least 14 months, I’m better off in the CD.  I’m almost certain I can do that.

My bank made it incredibly easy to open the cd, it took about 3 minutes on-line and I was all set.  A quick little tweak and I’m over $1,000 ahead.

So then I looked for other tweaks.  Another of my money market accounts was only paying .6%.  I transferred that money to the money market account offering 1.3%.  That gets me another $420 per year–$35 a month.

Now I’m $1,459 ahead–over $120 a month.  Almost $7,300 over five years.  It took more time to write about it than it took to implement it.

Then I told Mr. Ms. Liz he should do the same . . . hopefully he will.  Then he can take me out to dinner 🙂

What quick little things can you do to improve your finances?

Photo credit – SA we met a two year she-moose biking the Village to Village Trail, Beaver Creek Colorado


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Author: Ms. Liz

A CPA, I retired at 51 and I am helping people create their fantastic futures!

6 thoughts on “Little Things Can Make a Big Difference”

    1. Thanks for stopping by MAR! I realized later I could have the same rate for 5 cd’s of 20k as 1 cd of 99k. That would have given me more flexibility.

    1. Thanks Amy–that moose startled us!

      Good luck with your tweaking–it’s probably a great time to rebalance to our target allocation.

  1. Mrs. 39 Months has this issue. She keeps a tremendous amount of money in a regular savings account. I’ve had a hard time just getting her to look at CDs!

    Not sure how this will all work out as we hit retirement in less than 3 years, but we’ll work it out.

    Mr. 39 Months

    1. I’d encourage you guys to look at the break even point between savings rates and CD rates. As long as you keep the money in the CD past the break even point, you’ll come out ahead with the CD.

      I broke the CD’s down into $20,000 chunks so if I need some money, I’m not paying the penalty on the entire amount. Fortunately, my bank let me change the amount after I opened the account (and wrote the post!).

      I have a friend who is suggesting I put my money in high dividend ETF’s instead–with yields up to 8.68%. Check out REM, MLPJ, BIZD, RWX, SPFF, SDIV, SDEM, MORT. Too many options!

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