Financial Planning for Generation X & Y Women
 
Notice: Because of a database server upgrade, this site may be partially non-functional from August 21st to August 22nd. No data will be lost. We apologize for any inconvenience.
Under slight reconstruction until 5PM CST today... Please excuse the dust!
Resource Center
Expert Q&A Archive Teleconference Call Archive Online Resources Federal Reserve Board Resources FPA Perspectives
Error — no()

Expert Q&A Archive

07/02/2008
Where is the best place to save money set aside for property taxes?
I am setting aside $500 per month to pay my property taxes. Right now it is in a traditional passbook savings account, but Im wondering if I should put it into a short-term CD or even a money market account. My property taxes are due in September and January, so in a way theres about nine months where its just sitting there doing nothing. What is the best venue to save that money?
Kris Freeberg:
expert info »
I would not deal with the property taxes in isolation. There are other short-term savings goals to prepare for, like holiday gifts, house insurance, summer gardening, vacations, etc. etc.

The funds for all of these goals could be accumulated in a liquid, non-retirement mutual fund account.
Michael A. Masiello:
expert info »
Best bet is to utilize an online savings account.
Susan Garcia:
expert info »
My specialty is real estate, and not accounting or financial planning, but I do agree that if you are saving this money over nine months, you should earn interest on it. Check with your bank about the best way to earn interest, and they can transfer the money when you need it. Banks can often set up a money market [account] and transfer the money in and out at your convenience while it earns interest.
Marcia Brixey:
expert info »
You're right. It's a great idea to check out interest rates [on] short term CDs and money market accounts. You'll probably get more interest [on them], and it's less tempting to dip into the[se] accounts. Bankrate.com provides a list of financial institutions, along with their CD and money market rates at http://www.bankrate.com/brm/rate/deposits_home.asp
Jeff Kyle:
expert info »
A money market savings account (MMSA) gives its interest rate based on the amount of money in the account. I think if you compare a MMSA to a CD, the CD will probably serve your purpose better. Since either of these would be at your bank, consulting with your banker is quite appropriate. Respectfully, Jeff
Joan Koonce, Ph.D:
expert info »
If you can get a short-term CD that pays a higher interest rate than your current passbook savings account, then I would say that is a good thing to do. You need to make sure that the maturity date on the CD is before your property taxes are due. If you can find a money market account or money market mutual fund with a higher interest rate than your current savings account, that would be a good option too. The advantage of using a money market account or money market mutual fund is that you don't have to leave the money there until a set maturity date to prevent being penalized; however, you may not be able to write checks below a certain amount (e.g., $250 or $500). This would not be a problem for you since you are using the money primarily to pay your property taxes.
Gary Silverman, CFP:
expert info »
For ease and interest, I recommend putting this money in the same place you put your emergency fund savings. Many no-load mutual fund companies have some excellent money market mutual funds; however, they often have higher minimums. (For instance, Vanguard requires $3000.) You might use one where the minimum is covered by your emergency fund needs, and then on top of it you save the $500 per month.

Your short-term CD idea would work well too, especially if you think rates will stay steady or decrease. These might be more of a hassle though, as you'd need to periodically convert your savings to a CD across the year.
Sharon P. Hardy, CFE:
expert info »
My recommendation would be to place the funds in a money market account, which generally pays a better interest rate than does a traditional passbook saving account. If there is absolutely no probability of incurring a penalty for having to withdraw the monies that have been placed into a CD for the purpose of paying the taxes before the CD actually matures, and the CD pays a better rate of interest than either of the other two choices, a CD would be the most prudent selection.
Connie K. Marmet:
expert info »
The place to start is with research on rates being paid on

Savings accounts;
Checking accounts that sweep cash into mutual funds; and
Various types of CD's.

On CD's, it's important to know how maturity dates match to the times your taxes are due; the penalty for early withdrawal, and whether you can add funds to the CD prior to its maturity. The fact finding will help you make your final decision.
Claudia James:
expert info »
I'd definitely look into short-term CDs as well as short-term Treasury Bills.
T-bills are extremely low risk and depending on your current interest rate, the actual yield on the T-bill may be higher. In certain situations, I think T-bills are a good place to temporarily "park" monies.