Safe Place for Emergency Fund

[thelmers]

With the inflation rate at about 2.45 and the best savings account rate at only 2.25, are there any other safe places to park my emergency fund money?

 

[SumDay]

We keep ours in an Ally savings account, because their set up to transfer to our outside checking accounts is easy peazy. Ally has a 2.30% CD right now.

To me, it's not worth chasing the .20 you reference in your post. Of course, YMMV.

This post contains the collective wisdom of all CD's and MM returns: http://www.early-retirement.org/for...e-post-updates-here-95956-14.html#post2208235

And welcome to the forum!

 

[LRDave]

Right now, the Ally 12-month CD is at 2.75%. For me, an emergency fund means just holding serve against inflation whilst not risking principal and not tying up the funds in a long-term commitment. I've been very happy with Ally.


Welcome, by the way!

 

[Dtail]

We keep ours in an Ally savings account, because their set up to transfer to our checking accounts is easy peazy. Ally has a 2.30% CD right now.

To me, it's not worth chasing the .20 you reference in your post. Of course, YMMV.

This post is the collective wisdom of all CD's and MM returns: http://www.early-retirement.org/for...e-post-updates-here-95956-14.html#post2208235

+1

 

[pb4uski]

With the inflation rate at about 2.45 and the best savings account rate at only 2.25, are there any other safe places to park my emergency fund money?

Vanguard Prime Money Market Fund (VMMXX) is currently yielding 2.48% and would be expected to generally keep pace with inflation.

 

[OldShooter]

Sure. Buy short/medium TIPS. If you actually have an emergency and need some cash, sell a few. You will not take much of a haircut and in the mean time the money is safely on autopilot, guaranteed to retain its purchasing power.

 

[iloveyoga]

Vanguard Prime Money Market Fund (VMMXX) is currently yielding 2.48% and would be expected to generally keep pace with inflation.

This is what I use too.

 

[audreyh1]

With the inflation rate at about 2.45 and the best savings account rate at only 2.25, are there any other safe places to park my emergency fund money?

The inflation rate is closer to 2%

In fact it was 1.5% over the past 12 months.

 

[ziggy29]

With the inflation rate at about 2.45 and the best savings account rate at only 2.25, are there any other safe places to park my emergency fund money?

Money market funds may be 25 basis points higher give or take. That said, if you are using the emergency fund as usually intended -- a few months of living expenses in a safe, liquid vehicle -- I wouldn't bend over backwards to chase a small amount of yield if it involved fluctuation of principal value or hassles and extra time needed to access the funds.

 

[Red Badger]

We have 3 buckets.
1. SHTF bucket - some cash stashed in the house enough for at least a full month of expenses.
2. Real emergency $$ - a couple months cash in the bank safe deposit box.
3. Sort term income and emergency cushion - laddered CD's going out about 18 months.

 

[steelyman]

I’ve got a year’s income earmarked as emergency reserve in Vanguard Prime Money Market.

 

[audreyh1]

As retirees living off our investments we have quite a bit set aside in short-term funds (high yield savings, short-term CDs, money market funds, etc.) to cover a couple of years living expenses. So that’s available for emergencies as well.

It’s different from when we were working.

 

[OldShooter]

Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

(Another option to avoid this angst is to not have a separate emergency fund at all, but simply to set up a credit line that can be hit in an emergency then repaid from one's investment portfolio.)

 

[corn18]

Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

(Another option to avoid this angst is to not have a separate emergency fund at all, but simply to set up a credit line that can be hit in an emergency then repaid from one's investment portfolio.)

When I had no savings, I had a small EF to cover things I could not cash flow (busted HVAC/water heater, pet emergencies, etc...) It was about $5k, which was in a savings account. I used it 2-3 times a year and replenished it.

When I had more savings and more income, I had a cash EF (6 months expenses) stashed in a MM fund. I could cash flow any non-job loss emergency, so this was just a job loss EF. Never had to use it.

Now that I have large taxable and Roth accounts (many years of expenses), I don't need an EF anymore.

So, I think it depends on where the OP sits in his savings journey.

 

[gwraigty]

Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

+1

 

[Spock]

Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

(Another option to avoid this angst is to not have a separate emergency fund at all, but simply to set up a credit line that can be hit in an emergency then repaid from one's investment portfolio.)

While it is held long term, it is not a long term investment that can wait out a down turn to bounce back if needed during a market down turn.



As has been said before, there are different types of emergencies that require different liquidity levels.
ATM/credit card networks down = green dead presidents in hand. I keep a minimum of 2months.
Next level up is stable "cash" in an FDIC account. It WILL be there (assuming no bank "holiday"), but can be 5-7 days away.
Next level after that are assets that can be sold quickly if needed for either a stable amount or small loss like a CD early withdrawal penalty.


As far as credit lines, they can get shut off with a keystroke when banks are tightening up. and if you need to draw the rates can be high depending on if it's tied to an asset or unsecured. Good to have in the arsenal, but you're not going to get at it during the hurricane/fire/flood or the bank holiday.

 

[steelyman]

While it is held long term, it is not a long term investment that can wait out a down turn to bounce back if needed during a market down turn.

I agree. An emergency fund is not part of my investment portfolio, but a savings account. Just look up your Rainy Day Man.

 

[audreyh1]

I think some people are just saying things in a different way. If you have a large portfolio of investments, you likely have a pretty good chunk in reasonably liquid short-term investments unless you are a very aggressive investor. Those are easily tapped in case of emergency, and replenished later when it is prudent to do so investment-wise.

 

[steelyman]

Don’t forget that some people reading this thread might just be getting started on their way to early retirement. Or not early if they’ve experienced setbacks on the way.

 

[OldShooter]

When I had no savings, I had a small EF to cover things I could not cash flow (busted HVAC/water heater, pet emergencies, etc...) It was about $5k, which was in a savings account. I used it 2-3 times a year and replenished it.

When I had more savings and more income, I had a cash EF (6 months expenses) stashed in a MM fund. I could cash flow any non-job loss emergency, so this was just a job loss EF. Never had to use it.

Now that I have large taxable and Roth accounts (many years of expenses), I don't need an EF anymore.

So, I think it depends on where the OP sits in his savings journey.

Good answer!

 

[pb4uski]

When I had no savings, I had a small EF to cover things I could not cash flow (busted HVAC/water heater, pet emergencies, etc...)....

Any of those can be put on a credit card.... then you have at 20-50 days to figure it out.

 

[Music Lover]

Any of those can be put on a credit card.... then you have at 20-50 days to figure it out.

I've never had an emergency fund other than a small stash of cash and a couple credit cards (I never carry a balance).

 

[scrabbler1]

Many here and in Bogleheads have a layered, or tiered approach to emergency funds.


I have 2 main tiers. The first is a cushion of about $700 in my local bank's checking account over the minimum amount to avoid monthly account fees. This is used to cover smaller, unforeseen expenses which may arise in a given month. It is somewhat common for me to tap into this small cushion either from cash withdrawals or personal check.


The second tier is a $40k amount in an intermediate-term muni bond fund. It earns about 2-2.5% interest, mostly tax-free. I also have checkwriting privileges with the fund, a handy feature which gives me a little extra liquidity in a pinch. This fund is used to cover larger, unforeseen expenses which are too large for the local bank account's cushion to handle. The fund's value bounces around a little, but it pays close to $100 per month so I am not worried about an occasional loos on the rare sales I make from the fund. I have averaged less than 1 check per year in the 25 years I have been in this fund. This is part of my overall AA.

 

[Montecfo]

While it is held long term, it is not a long term investment that can wait out a down turn to bounce back if needed during a market down turn.



As has been said before, there are different types of emergencies that require different liquidity levels.
ATM/credit card networks down = green dead presidents in hand. I keep a minimum of 2months.
Next level up is stable "cash" in an FDIC account. It WILL be there (assuming no bank "holiday"), but can be 5-7 days away.
Next level after that are assets that can be sold quickly if needed for either a stable amount or small loss like a CD early withdrawal penalty.


As far as credit lines, they can get shut off with a keystroke when banks are tightening up. and if you need to draw the rates can be high depending on if it's tied to an asset or unsecured. Good to have in the arsenal, but you're not going to get at it during the hurricane/fire/flood or the bank holiday.

After I had accumulated taxable investments I felt I did not need a separate emergency fund. You will accumulate less money if you maintain one, and I saw no need.

When you put a bunch of money in a MMF you are taking a loss every month to prevent a much smaller loss that might never happen.

 

[audreyh1]

After I had accumulated taxable investments I felt I did not need a separate emergency fund. You will accumulate less money if you maintain one, and I saw no need.

When you put a bunch of money in a MMF you are taking a loss every month to prevent a much smaller loss that might never happen.

Opportunity cost, huh? If someone convinces themselves that every last dollar they have invested must be in the absolute top yielding or fastest growing asset, we know they are setting themselves up for a wild ride. Most people don’t choose to do that. So once you back off from maximizing long term return overriding every other consideration, you can’t sweat the opportunity cost so much.

I honestly don’t worry about only getting 2.3% to 2.5% on my short term cash type investments compared to longer term or lower credit quality bonds or equities.

I have so much invested in equities that I feel I can “afford” to have plenty of conservative investments as well.