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When will you spend most of this money?
A windfall tends to arrive when you are pleased, a little anxious and hearing advice from every direction. The first job is smaller than it feels: put the money somewhere safe and insured while you decide what it is for.
Where should I keep a windfall for the next few months?
Match each dollar to the date you will spend it. Money you need soon stays in high-yield savings, and money with a known date can sit in something that ends that day.
The best-paying place can be the wrong one. A product that pays a little more but locks the money past your date can cost more than it earns. Today the top savings rate in our snapshot is 4.27%, and a typical checking account pays 0.07%. Leaving a lump sum in checking while you decide pays the least of the options here.
How do I split a windfall between savings, Treasury bills, CDs and a money fund?
Keep a reserve in savings, then put the rest in the Treasury bill or CD that earns more after tax and ends on or before your date.
The calculator above uses a simple house rule. If the money must stay instantly available, all of it sits in savings. Otherwise a quarter stays in savings and the rest goes to whichever term product earns more after tax, with leftover days rolling back into savings. Treasury bills come in set terms of 4, 6, 8, 13, 17, 26 and 52 weeks,1 so the longest bill that fits your date is the one the tool uses. The money fund only enters the mix when it beats savings after tax, and then only up to half of the instant slice.
Do Treasury bills beat savings after tax?
Sometimes, and mostly in high-tax states. Bill interest is taxed federally but not by your state or city,2 while savings and CD interest is taxed by both.
That is why the state and tax-rate inputs matter. In a state with no income tax, a bill and a CD are taxed alike and the higher gross rate wins. In a high-tax state the bill can come out ahead even at a lower stated rate. The one-year Treasury yield in our snapshot is 4.40%, and the best CD is 4.95%. For the state-tax math in more depth, read Treasury versus bank interest after state tax.
How do I keep a large windfall fully insured?
Split the deposit dollars across banks so none exceeds the insured limit. FDIC coverage is $250,000 per depositor, per bank, per ownership category.3
A single account and a joint account at the same bank are separate categories, so they are insured separately.4 The coverage meter below the calculator shows the deposit part of your mix at one bank and split across as many banks as it takes. Treasury bills are not bank deposits, so they do not count toward a bank's FDIC limit. Check any bank with our insurance check, and for trusts and family accounts see FDIC coverage for families.
Is a money market fund safe for a windfall?
It is not insured. A money market fund is an investment, and unlike a money market deposit account it is not guaranteed by the FDIC.5
That is why the calculator caps the fund at half of the instant slice and only uses it when it pays more than savings after tax. If you already hold a fund at a brokerage, money market fund versus high-yield savings walks through the tradeoffs.
What should I do with a windfall in the first 30 days?
Park it, reserve anything owed in tax, and make no large decisions yet. The parking step is this page, and the rest of the order is in the windfall playbook.
Once you know the money will sit for months, such as a home purchase, read down payment cash, one to three years out. If you want to ladder CDs to a date, the CD ladder chapter shows how, and if you decide to move banks for a better rate, use the bank switching checklist.