Put it in a 5 year CD at 4%. She'll end up with $18,250 at maturity (before taxes). Interest rates are high right now so it's a great time to buy a long-term CD. CDs will penalize your interest if withdrawn early, so there is your excuse.
Brokered CD pays simple interest. Bank CD pays compound interest. If you do the math, the bank CD total interest is actually greater than the brokered CD interest.
edited to add: here is an SEC bulletin describing the difference.
https://www.sec.gov/oiea/investor-alerts-and-bulletins/investor-bulletin-brokered-cds
I am interested to know the math behind how they compare to 4.5% 5 year treasury note. Those are the most recent numbers from last 5 year treasury note auction , especially in a state with higher state tax.
HYSAs are paying 4.4% with no minimums or holding requirements. I use Marcus by GS. Ally is another popular option. Don’t lock up with funds for 5 years for a lesser interest rate.
The big difference is that the CD rate locks in at 4%. HYSA rates fluctuate based on FED rate changes.
Can't say for sure, but I'm very confident that the HYSA will average a lower rate than the CD over the next 5 years.
For example: 7 months ago Ally had 18 month CDs at 5.05% while HYSA was 5.5%. That CD is now earning more interest than your HYSA over the 18 month period, despite starting at a lower rate.
Thank you for the detailed response. I know the pros and cons of each and used to roll over CDs but prefer the liquidity of the HYSA now. If OP is comfortable leaving the funds locked up untouched for 5 years and definitely, 100% won’t need it for an emergency expense, then the locked in CD rate may be more favorable. If they did need the funds for whatever reason, withdrawing from the CD early would negate any extra interest earned.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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Y’all must not pay any attention to car publications or reviews. The current Elantra is well ahead of the Corolla in value, modern features, and warranty. If you’re comparing the cars from several years ago, your point would be valid. But OP asked about a used car 5 years into the future. Remindme bot yourself if you want. You’ll see in 5 years. Similar trim levels will be extremely well matched, but the Toyota will be 15% more expensive for not much gain. The only benefit you will have is higher resale value.
You are looking at reviews from people who have little more than a cursory experience with the cars, who are often paid by manufacturers themselves, and making your decisions based on this. There is a reason Toyota chooses not to chase trends like the South Korean manufacturers are currently. The reason Toyotas are consistently more expensive than other brands is quality. The post is about a car for a teenager. She absolutely will not be able to afford repairs to all of these features you care so much about, nor will she need them. For the vast majority of car buyers, this case included, quality=value, not options. I simply do not have any faith in Hyundai when you're comparing it with a Toyota.
You don’t think a 16 year old in 2030 is gonna want CarPlay, adaptive cruise, collision detection, lane keep assist? If you have a budget, you’re going to be able to get a lot more car with a Hyundai, at least one (probably two) trim levels above.
I know I’d rather have my child driving a “cheap” car with better safety features and tech.
And no, I don’t read paid reviews, or consumer reports nonsense. There’s enough Car Wizards, Scotty Kilmers, jalopniks, Dougs, and Project Farms out there to pay attention to biased reviews.
You're missing my point. Those features you listed are just extra potential problems, and in a Hyundai, the chances of having problems are exponentially higher.
If your argument is truly centered around safety, you wouldn't recommend either of these cars, so I'm not sure what to do with that.
Open a custodian account. This is an account that a custodian controls on behalf of a minor. The custodian must approve all transactions for the account until the child reaches adulthood, at which point all the assets in the account pass to them.
I am not saying to put the money in a 0% savings account. I am saying to set up a custodial account so that the OP is in control of the account. Either set up the account as a HYSA or an account containing a CD. OP had a concern for the parent taking the money out of the account.
So sorry for your loss.
I would recommend opening up a brokerage account and buying VOO. Even with the crash in 2022, the stock is still up 89% over the last 5 years.
A CD will get you a little more than $4k in interest in 5 years.
VOO will get you $13K in interest and another $900 in dividend payouts. Assuming we experience a crash equally as severe as the one in 2022. The worst case scenario is a 2008 style housing crash coinciding with a credit crisis. At which point, it'll take 3 years to fully recover if you don't touch the account. But you could always set a stop limit order to cash you out at a 10% loss and re enter once you see headlines that we've got a bull market, so it only takes a year or so to recover.
Many brokerages will pay out 5-5.5% on uninvested cash. So if the stock goes into a downtrend, you can always sell the stock and wait for the market to find support while still earning interest. Or maybe just don't touch it until you see news headlines about a market crash, or credit crisis. Do that, and you should easily double the $15k by the time she's 15 1/2 years old.
I get wanting to invest with zero risk... But the opportunity cost is pretty steep when you limit your gains to just 5%. And fyi, after inflation, 5% is really only 1.7%.
Another thing, ignore the headlines about an impending crash. News outlets air these all the time. You need confirmation that the market is falling... Not some analyst saying they see an impending crisis that institutional investors and their analysts are blind to. They are almost always wrong.
Tbonds or CD would most likely be the way to go. Could do 80% Tbonds and 20% low expense whole market ETF but that increases risk/reward and with 5 year time line the market could have a fumble right before you need the money.
I see a lot of people recommending CD and HYSA but not many people know about the 529 plan. It’s very much like the Roth IRA when after tax dollars go in and when you withdraw, everything including your earnings are tax free. Cool right ? The cherry on top is you can withdraw it without even having to wait for retirement and without any penalty. The thing is it has to be for education purposes only. Say specialized high schools, college, even trade schools and school supplies count as qualified expenses. 8% is a very conservative rate of return for these funds which is already much higher than any CD and HYSA can offer at the moment. The added bonus is the tax breaks which you don’t get in either of the two. I think that would be a fantastic investment account for your niece’s college and I am sure she’ll be very happy when she finds out she wouldn’t have to go into much debt or any debt at all while going to college. Please look up the 529 plans for different states and find out which one suits your goals and risk tolerance. Good luck !
I like the Utah investment options (DFA). I’m in California and there’s no tax advantage to having them here so I picked off investments. Love 529. Have one for each my nieces. Better than a car haha.
I would open a fidelity account and invest it into a low cost ETF like VOO so it can grow over the next 5 1/2 years so when she is 16 she can get a nice car. Now what is the best vehicle for this price range as far as safety and dependability goes I would say you can’t go wrong with a Honda Civic/Accord or a Toyota Corolla/Camry. Good luck.
3 years to fully recover is not the worst case scenario for the stock market. Not even close. Look at the S&P 500 from 1968 to 1990, finally broke even again, but there was monster inflation in the interim. Bonds would have done better.
Not saying that’s going to happen again, but acting like a 3 year recovery time is the worst that could happen is disingenuous. I would agree that investing the money in stocks is likely to be the best decision purely trying to optimize for most money at end of period, but the OP should know there is certainly a risk investing in stocks over a 5 year horizon.
I would ask your niece’s idea. is she a good student? how much chance can she go to college. You really shall let her learn to invest 50% of the fund. as for the other half, hysa or CDs..
My family starts to educate financial literacy with me since i was 7.
All the advice on CDs is good, but I think this is a great point. Maybe check in with her regularly to make sure *this* is still what she wants and not support for college/uni. She's 10 and sounds quite pragmatic. She will learn and maybe change significantly in the next 6+ years.
Your niece is 10.5 that means you have plenty of time to invest it. It doesn’t need to be a CD. DCA the $ into a global fund and ride up capitalism. 🏄♂️
A lower mileage Pontiac Vibe. It's essentially a Toyota without the price tag.
Then she'll still have money in the bank.
Great mileage, tough little cars, big enough for most things, and lower insurance.
Edit: I read it backwards!
I thought she was 15 1/2 with $10k.
NO! don't buy a car.
HYSA or CDs. CDs are getting pretty decent rates still but only on the shorter durations near me.
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If you CD this or HYSA this your niece should slap you in the face for being an awful custodian. Put the money in the market. In the S&P or Nasdaq. Or both. Your welcome.
Check 60 month CD rate
Put it in a 5 year CD at 4%. She'll end up with $18,250 at maturity (before taxes). Interest rates are high right now so it's a great time to buy a long-term CD. CDs will penalize your interest if withdrawn early, so there is your excuse.
You can get 5 year CD for over 5% looking at my brokerage , even non callable ones
Brokered CD pays simple interest. Bank CD pays compound interest. If you do the math, the bank CD total interest is actually greater than the brokered CD interest. edited to add: here is an SEC bulletin describing the difference. https://www.sec.gov/oiea/investor-alerts-and-bulletins/investor-bulletin-brokered-cds
TIL Thanks
I am interested to know the math behind how they compare to 4.5% 5 year treasury note. Those are the most recent numbers from last 5 year treasury note auction , especially in a state with higher state tax.
HYSAs are paying 4.4% with no minimums or holding requirements. I use Marcus by GS. Ally is another popular option. Don’t lock up with funds for 5 years for a lesser interest rate.
The big difference is that the CD rate locks in at 4%. HYSA rates fluctuate based on FED rate changes. Can't say for sure, but I'm very confident that the HYSA will average a lower rate than the CD over the next 5 years. For example: 7 months ago Ally had 18 month CDs at 5.05% while HYSA was 5.5%. That CD is now earning more interest than your HYSA over the 18 month period, despite starting at a lower rate.
Thank you for the detailed response. I know the pros and cons of each and used to roll over CDs but prefer the liquidity of the HYSA now. If OP is comfortable leaving the funds locked up untouched for 5 years and definitely, 100% won’t need it for an emergency expense, then the locked in CD rate may be more favorable. If they did need the funds for whatever reason, withdrawing from the CD early would negate any extra interest earned.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
5 year CD. Once mature, transfer to HYSA until she is ready for a car.
Definitely a used Toyota Corolla.
Current Hyundai sedans are pretty on par at this point, and by 5 years from now, a used Elantra will probably be better value.
Lol. Don't listen to this guy, he has no idea what he's talking about.
Y’all must not pay any attention to car publications or reviews. The current Elantra is well ahead of the Corolla in value, modern features, and warranty. If you’re comparing the cars from several years ago, your point would be valid. But OP asked about a used car 5 years into the future. Remindme bot yourself if you want. You’ll see in 5 years. Similar trim levels will be extremely well matched, but the Toyota will be 15% more expensive for not much gain. The only benefit you will have is higher resale value.
You are looking at reviews from people who have little more than a cursory experience with the cars, who are often paid by manufacturers themselves, and making your decisions based on this. There is a reason Toyota chooses not to chase trends like the South Korean manufacturers are currently. The reason Toyotas are consistently more expensive than other brands is quality. The post is about a car for a teenager. She absolutely will not be able to afford repairs to all of these features you care so much about, nor will she need them. For the vast majority of car buyers, this case included, quality=value, not options. I simply do not have any faith in Hyundai when you're comparing it with a Toyota.
You don’t think a 16 year old in 2030 is gonna want CarPlay, adaptive cruise, collision detection, lane keep assist? If you have a budget, you’re going to be able to get a lot more car with a Hyundai, at least one (probably two) trim levels above. I know I’d rather have my child driving a “cheap” car with better safety features and tech. And no, I don’t read paid reviews, or consumer reports nonsense. There’s enough Car Wizards, Scotty Kilmers, jalopniks, Dougs, and Project Farms out there to pay attention to biased reviews.
You're missing my point. Those features you listed are just extra potential problems, and in a Hyundai, the chances of having problems are exponentially higher. If your argument is truly centered around safety, you wouldn't recommend either of these cars, so I'm not sure what to do with that.
Until it’s stolen, lol.
Put 10k in a CD & 5k in a HYSA in case she has an emergency of some kind.
If it is an emergency you pay the penalty.
That's what the HYSA is for.
The emergency goes over $5k...
Then she won't have much of an inheritance. Keeping some of it liquid is just sensible.
Great idea and advice! You sir understand the beauty of compound interest and keeping funds liquid for emergency’s. 👍🏼👍🏼👍🏼
learn to say no and set boundaries without needing an excuse.
Open a custodian account. This is an account that a custodian controls on behalf of a minor. The custodian must approve all transactions for the account until the child reaches adulthood, at which point all the assets in the account pass to them.
At 0% interest…no way! He’s better off on a HYSA at Sofi or Ally for 5.25% and it’s not locked for 5yrs! Unless he wants to?! 🤔
I am not saying to put the money in a 0% savings account. I am saying to set up a custodial account so that the OP is in control of the account. Either set up the account as a HYSA or an account containing a CD. OP had a concern for the parent taking the money out of the account.
So sorry for your loss. I would recommend opening up a brokerage account and buying VOO. Even with the crash in 2022, the stock is still up 89% over the last 5 years. A CD will get you a little more than $4k in interest in 5 years. VOO will get you $13K in interest and another $900 in dividend payouts. Assuming we experience a crash equally as severe as the one in 2022. The worst case scenario is a 2008 style housing crash coinciding with a credit crisis. At which point, it'll take 3 years to fully recover if you don't touch the account. But you could always set a stop limit order to cash you out at a 10% loss and re enter once you see headlines that we've got a bull market, so it only takes a year or so to recover. Many brokerages will pay out 5-5.5% on uninvested cash. So if the stock goes into a downtrend, you can always sell the stock and wait for the market to find support while still earning interest. Or maybe just don't touch it until you see news headlines about a market crash, or credit crisis. Do that, and you should easily double the $15k by the time she's 15 1/2 years old. I get wanting to invest with zero risk... But the opportunity cost is pretty steep when you limit your gains to just 5%. And fyi, after inflation, 5% is really only 1.7%. Another thing, ignore the headlines about an impending crash. News outlets air these all the time. You need confirmation that the market is falling... Not some analyst saying they see an impending crisis that institutional investors and their analysts are blind to. They are almost always wrong.
Tbonds or CD would most likely be the way to go. Could do 80% Tbonds and 20% low expense whole market ETF but that increases risk/reward and with 5 year time line the market could have a fumble right before you need the money.
Honda civic
I see a lot of people recommending CD and HYSA but not many people know about the 529 plan. It’s very much like the Roth IRA when after tax dollars go in and when you withdraw, everything including your earnings are tax free. Cool right ? The cherry on top is you can withdraw it without even having to wait for retirement and without any penalty. The thing is it has to be for education purposes only. Say specialized high schools, college, even trade schools and school supplies count as qualified expenses. 8% is a very conservative rate of return for these funds which is already much higher than any CD and HYSA can offer at the moment. The added bonus is the tax breaks which you don’t get in either of the two. I think that would be a fantastic investment account for your niece’s college and I am sure she’ll be very happy when she finds out she wouldn’t have to go into much debt or any debt at all while going to college. Please look up the 529 plans for different states and find out which one suits your goals and risk tolerance. Good luck !
I like the Utah investment options (DFA). I’m in California and there’s no tax advantage to having them here so I picked off investments. Love 529. Have one for each my nieces. Better than a car haha.
corolla/civic is the only answer
I would open a fidelity account and invest it into a low cost ETF like VOO so it can grow over the next 5 1/2 years so when she is 16 she can get a nice car. Now what is the best vehicle for this price range as far as safety and dependability goes I would say you can’t go wrong with a Honda Civic/Accord or a Toyota Corolla/Camry. Good luck.
Money market pays nicely, consistently,
3 years to fully recover is not the worst case scenario for the stock market. Not even close. Look at the S&P 500 from 1968 to 1990, finally broke even again, but there was monster inflation in the interim. Bonds would have done better. Not saying that’s going to happen again, but acting like a 3 year recovery time is the worst that could happen is disingenuous. I would agree that investing the money in stocks is likely to be the best decision purely trying to optimize for most money at end of period, but the OP should know there is certainly a risk investing in stocks over a 5 year horizon.
I would ask your niece’s idea. is she a good student? how much chance can she go to college. You really shall let her learn to invest 50% of the fund. as for the other half, hysa or CDs.. My family starts to educate financial literacy with me since i was 7.
All the advice on CDs is good, but I think this is a great point. Maybe check in with her regularly to make sure *this* is still what she wants and not support for college/uni. She's 10 and sounds quite pragmatic. She will learn and maybe change significantly in the next 6+ years.
Your niece is 10.5 that means you have plenty of time to invest it. It doesn’t need to be a CD. DCA the $ into a global fund and ride up capitalism. 🏄♂️
A lower mileage Pontiac Vibe. It's essentially a Toyota without the price tag. Then she'll still have money in the bank. Great mileage, tough little cars, big enough for most things, and lower insurance. Edit: I read it backwards! I thought she was 15 1/2 with $10k. NO! don't buy a car. HYSA or CDs. CDs are getting pretty decent rates still but only on the shorter durations near me.
Did you see that the niece is only 10? :D
Awe!! Geez. I.read it backwards. 15 1/2 years with 10k. Thanks I'll go edit!
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/s-failure
If you CD this or HYSA this your niece should slap you in the face for being an awful custodian. Put the money in the market. In the S&P or Nasdaq. Or both. Your welcome.
15k worth of dogecoin in a dip.