PERSONAL FINANCE
Forget Low Savings Rates—Here Are 3 Better Ways To Use Spare Cash
From simple to sophisticated, here’s how I’m putting my money to work.
It’s critical to have a savings account for life’s goals and surprises.
If you want steady progress toward financial independence, then the bare minimum is a healthy emergency fund in an FDIC-insured account.
But if you’ve got a lot more spare cash, then it’s depressing to watch it gather darn near zero percent interest.
Even my relatively high-yield Ally account pays a paltry 0.50% right now. That would return just $500/year if I deposited a hundred grand.
Thanks, but no thanks!
Fortunately, there are plenty of ways to put part of that stockpile to more productive use.
Below are my three favorites, from simple and certain to a bit more complex and risky.
I’m not a financial professional. This is purely opinion and entertainment, not advice. Do what’s right for you, and if in doubt about what that is, then it’s important to find someone who’s legally able to tell you.
Buy your necessities in bulk
Buying everyday items in bulk is a high-return opportunity that’s so obvious we seldom think of it.
Whether it’s the bulk aisle at the supermarket or a palette at the warehouse club store, you can stack up savings in short order.
You’ll also save time, energy, stress, packaging, and gas by reducing shopping trips.
Reasonable returns: 20%-50% savings, but only relative to your usual spending. The savings are easy, but they have a firm ceiling.
How to do it right: The most important part is to buy amounts you’ll actually use of things you already need. If food expires, or you blow cash on optional purchases “since we’re already here…” then the savings will be a wash, at best.
Pro tip: If you eat a fair amount of meat and/or produce, then a chest freezer might pay for itself a few times over in a single year.
Explore low-risk cryptocurrency savings options
You read that correctly: “low-risk” and “cryptocurrency” in the same sentence.
But stay with me. I’m most definitely not talking about buying Dogecoin with leverage. I’m not even talking about Bitcoin.
Rather, you’ll deposit US dollars into a service like BlockFi, then convert it into a “stablecoin” (a cryptocurrency pegged 1:1 to the US dollar) that pays significant interest.
This is possible because BlockFi loans your deposits to large institutions at much higher rates (and with high collateral). In that respect, it’s a lot like traditional banking, just with different instruments.
You can also purchase other coins, like Bitcoin or Ethereum, if you’re so inclined. But those are far more volatile, so they don’t serve the same purpose as a savings account.
Of course, there are some unique risks. Even stablecoins aren’t perfectly stable, and there’s no deposit insurance.
Reasonable returns: As of writing, BlockFi pays up to 9.3% on stablecoins. That’s subject to change, but for the foreseeable future, it should remain orders of magnitude higher than traditional savings accounts.
How to do it right: This is trivially easy to do: create a BlockFi account, link it to your bank, and start a deposit.
Pro tip: I was personally comfortable with depositing a large amount all at once, since I view it as a savings account. But if you view it as an investment, then consider cost-averaging in over the course of a few months.
Write cash-secured puts on stocks you want
As promised, I’ve saved the riskiest and most complex idea for last.
Now, it’s not at all risky or complex in the grand scheme of things, but it’s not trivial like buying in bulk or making a deposit, either.
Anyway, you’re probably all too aware that the stock market is generally overvalued. I’d normally suggest putting most excess cash into a broad-based ETF, but you might be reluctant at today’s astronomical P/E ratios.
Instead, you can use cash as collateral for put options on stocks/ETFs that you fundamentally like…but would rather pay less for.
The short version is that someone pays you a fixed amount (a “premium”) in exchanging for promising to buy 100 shares of a stock, at a predetermined “strike price,” by a predetermined date.
If the stock price does fall to or below that threshold, then you buy the shares for exactly that threshold amount. If doesn’t fall to/below that threshold, then you don’t. Either way, the entire premium is yours to keep.
You can think of it as a limit order with a time constraint…where you get paid for waiting!
Here’s a more thorough discussion of what I mean. And if that’s a bunch of mumbo-jumbo, then start with this gentle introduction to options.
Reasonable returns: I’ve averaged 1%-2%/month with blue-chip stocks. Many traders get consistently higher returns, but my risk tolerance is a bit lower. I’m also less willing to spend time monitoring trades.
How to do it right: I like contract expiration dates about 2–4 weeks out, with strike prices that the stock/ETF has a 10%-20% chance of reaching. (Your brokerage will show that probability for every contract, but remember, it’s just an estimate.) Of course, it’s still got to be a price I’m content to pay. If not, then simply wait or find another asset.
Pro tip: I can’t overstate how important it is to choose assets that you already want. Remember, you may end up buying it, so skip it if you’re less than 100% OK with that!
If you’re not thrilled with the options trading experience from your current broker, then I highly recommend trying out Tastyworks (← referral link).
Their overall interface (and especially profit-and-loss tracking) are easily the best around. It’s not strictly necessary, but awfully nice, so that’s where I do all my active options trading.
We’ve covered three simple ways to squeeze much more out of spare cash than any bank will yield.
There’s no particular risk in shopping (besides food expiring…) so it’s the surest and easiest starting point.
But there’s only so much we can actually buy. That’s why crypto-lending accounts and put options are my favorite ways to use a significantly larger cash stash.
They’re also great examples of the financial doors you can open by investing a day or two in learning. At the risk of venturing into vacuous self-improvement territory, that might be the wisest investment of all.
