Savings?

Also, I have some money in the bank that is just sitting in the savings account.
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That's where a money market mutual fund comes in (not to be confused with the so-called "money markets" your local bank has). I always like to keep about 3-6K in a money market account; call it an emergency fund, for unexpected purchases (say the frig dies, or i have a pricey home repair). Anyway, the return on a money market fund will always be superior to a savings account, by a long shot. And unlike a savings account, you can write checks on it.
 
So which mutual fund would you guys recommend as emergency fund?
 
So which mutual fund would you guys recommend as emergency fund?
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I wouldn't bother with one for the e-fund.  ING makes a good parking spot for e-fund money.  The savings account rates are good and the short term CD rates are better still.  It's not too hard to get at the money but it's still segregated which makes it harder to spend than if it were in your regular bank account.  A portion of your e-fund is only for the big mishaps and so will not likely be touched so locking it into a CD isn't a bad thing - you can still get at it with the only downside being a small loss of interest.

You could also consider EE savings bonds but since these have a 1 year no-sell period you would have to ease into them.  Perhaps putting at most 10-20% of your e-fund in every year until you reached the amount you wanted. These have a big advantage of ratcheting up as rates increase (at 90% of the 5 year T-Bill rate).

Personally, I keep my e-fund split between a CD at my credit union (45%), money at ING (45%) and some stashed into my credit union accounts mostly as a float (10%).
 
So which mutual fund would you guys recommend as emergency fund?
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What i said.... a money market mutual fund. near cd rates, totally safe (for all practical purposes), and you can write checks on it.
 
Just keep this in mind with regards to MM funds.

Several times in the past the "unthinkable" occurrence of a MM fund devaluing the principal below a dollar has happened, and the fund owners dug into their own pockets to mask the situation and maintain the appearance of near zero risk.

Some economic projections are getting kicked around talking about the extreme debt, variable rate loans, and whatnot perhaps producing another shortage of cash and conditions that might put some pressure on that "maintaining a dollar as a dollar" in MM funds. Presumably the fund folks will do what they can to maintain the principal, as they have in the past.

Presumably.

And of course, depending on who you talk to, the time of day, and phase of the moon, you will have all sorts of lively discussion on whether we ever did or ever will again see markdowns on MM principal.
 
OK, I am going to max out my 403b first.  I was told I can contribute $13,000 a year, but I forgot to ask whether that was including what my employer was contributing or just what I was contributing.  Do you guys know?
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In 2004 it's safe to go with $13,000 (as long as you earn that much). However, $13,000 is not the limit for many people. If you'll be 50 by 12/31/2004 the limit is $16,000. If you also qualify for the 15 year rule, you can contribute as much as $19,000. The absolute limit is $19,000, not $13,000.
 
Well, that's a good to know thing about money market mutual funds, but given the extreme unlikiness of it, it wouldnt be a factor I would give much weight. I think its as you said, that the only rare times that a MM mutual fund "should" have dropped below $1, the fund company padded the drop. In other words, it never has happened in practice (to the investment holder).

We're only talking about a few K dollars for an emergency fund anyway, not a place to park major cash, so. And by emergencies, i means those that actually have a reasonable chance of occurring.
 
KB:  If I was making 75K I would consider myself rich, so you can see why ER doesn't seem like an option for me
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If I ever made that much in a year, I'd feel rich too! Never did, never will, doing just fine. But I still managed to sock it away and leave what many consider early (52). You are doing just fine :D

Posted by: Maggie D Posted on: Jul 8th, 2004, 11:04pm -- I was told I can contribute $13,000 a year, but I forgot to ask whether that was including what my employer was contributing or just what I was contributing.  Do you guys know?
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When I was contributing to a 457, the maximum allowable limit included what the county & I put in.  
 
Another choice to keep Emergency cash.

http://www.gmacfs.com/notes/demand/

I keep my cash here, it pays 2.5% and only checks of 250.00 or more can be written.  They used to be closed, requiring a referral from a member....but I don't see that mentioned any longer.

I've had an account there for years and even ING can't beat their rates.  They also have Smart Notes, which seem to be similar to Treasury notes.
 
A plug for GMAC, a monster of a company with whom
I've had numerous dealings. They are 100% with me so far. Very impressive. If I get to a point where I can no longer get 3% promo rates for liquid funds, I will check out their rates. I would be really comfortable with them.

John Galt
 
The GMAC Demand Notes are only available to the employees and retirees of General Motors/GMAC and their subsidiaries and their immediate family members (spouse, children, [siblings], parents and [grandparents]), GM Dealers and their employees, GM Stockholders, GM Suppliers/Vendors and their employees, and current customers of GMAC and its subsidiaries.

So this is not for everyone
 
Maggie,
GMAC Demand notes used to require a referral and they would solicate referrals by paying the referring member. I believe they discontinued that. I found in the investment section the download of the aplication and it asks where people heard about the Notes.

I'll call on Monday and find out if it's open and report back
 
I downloaded the application for the GMAC Demand Notes and it asks for eligibility and the choices are:

1. Salaried employee of GM/GMAC
2. Hourly employee of GM.GMAC
3. GM Dealer Employee
4. GM Dealer
5. Retiree of GM/GMAC or subsidiaries
6. GM stockholder
7. Immediate family member or eligible emplyee or retiree
8. Emplyee of GM/GMAC subsidiary
9. Customer of GM/GMAC or subsidiary
10. Vendor/affiliate of GM/GMAC or subsidiary
 
I called this morning and Maggie is right.  They are not accepting any referrals.....  Only what Maggie listed.

Sorry about the misinformation.  :(  For years they were solicating new accounts...........Guess they got enough.
 
I think I'll just buy CDs as a short term investment. I don't need to get at that money right away, so I think I'll do like 5 year CD. Is that a good option? Is 4.7% interest rate good? Does it matter whether it is from a bank located in my state or not?
 
4.7 is good and bank location isnt relevant.

Two tips: check the policy for interest rate return if you pull your money out of the cd sooner than the full 5 years. I saw one cd yesterday that had you paying back the last six months interest, and I saw another that had you paying back half the TOTAL interest paid.

The first one isnt too bad. If you bail on the cd six months into the third year, you get two years worth at the full rate. If you did the same with the other, you'd get half of 2 1/2 years worth of interest. Not so good.

Its also a good idea to not buy one big cd, but to buy a bunch at the minimum amount so if you need to cash one in, you dont take the interest rate whack on the whole balance.
 
Thanks for the advice. I am 100% sure that I will not need to take that money out :)
Anything else I should consider?
 
Hi Maggie. The offer seems a bit fuzzy to me on the details of the "bump". Also, last time I checked, 4.33%
was not a great rate on a 5 year CD. Otherwise, I see nothing wrong with the concept.

John Galt
 
Yesterday, when I checked it was 4.81%, so I guess it changed already :-/
 
I think 2.1 is a good rate for savings. ING pays that right now and it's better than my credit union's savings rate.
 
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