Why have a savings account at all?

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yeahman
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Why have a savings account at all?

Post by yeahman » Fri Jun 01, 2018 12:42 pm

If I have 110% of my emergency fund needs saved up, why not put all of it in a bond fund? If I have 200% saved up, why not count it as part of my retirement savings and allocate it accordingly (e.g., 80/20)? Am I missing something? With enough saved up, why would you ever want to keep anything in a savings account?

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Re: Why have a savings account at all?

Post by Grt2bOutdoors » Fri Jun 01, 2018 12:50 pm

I like brick and mortar banks, you can touch cash, you can obtain a cashiers check, you can obtain other services that a mutual fund company can not provide. Why can't the mutual fund company provide those services? They lack a banking license. Try getting a roll of quarters from Vanguard or a medallion signature guarantee.
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livesoft
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Re: Why have a savings account at all?

Post by livesoft » Fri Jun 01, 2018 12:53 pm

You wouldn't have a savings account.

This is discussed in the Bogleheads.org wiki, so everybody already knows all about it:

https://www.bogleheads.org/wiki/Placing ... ed_account
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rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 12:53 pm

Some folks like the security. But yes, I think you are basically right. I got rid of my savings account when I realized I'd always be able to sell enough stocks or bonds from my taxable account to handle an emergency. It's a common epiphany.

Jordan4FI
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Re: Why have a savings account at all?

Post by Jordan4FI » Fri Jun 01, 2018 12:54 pm

Grt2bOutdoors wrote:
Fri Jun 01, 2018 12:50 pm
I like brick and mortar banks, you can touch cash, you can obtain a cashiers check, you can obtain other services that a mutual fund company can not provide. Why can't the mutual fund company provide those services? They lack a banking license. Try getting a roll of quarters from Vanguard or a medallion signature guarantee.
Yup, That is correct. Banks and Credit Unions give you many services. Now do you need 80K in that account, no, most likely not. But always keep a checking/savings account open with a company that can give you the banking and lending services.

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 12:55 pm

livesoft wrote:
Fri Jun 01, 2018 12:53 pm
You wouldn't have a savings account.

This is discussed in the Bogleheads.org wiki, so everybody already knows all about it:

https://www.bogleheads.org/wiki/Placing ... ed_account
I don't think that placing your emergency savings in a tax-advantaged account is what OP is talking about. It's more to do with the fact that, once you have enough assets that can be quickly liquidated (e.g. big taxable account), you don't need a specific savings account to serve that purpose. The link you provided here does have an emergency fund, sort of: it's the Money Market fund in the tax-advantaged account.
Last edited by rbaldini on Fri Jun 01, 2018 12:58 pm, edited 1 time in total.

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9-5 Suited
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Re: Why have a savings account at all?

Post by 9-5 Suited » Fri Jun 01, 2018 12:57 pm

I’ve been planning on ditching my savings account for the same reasons. It’s mostly just mental accounting to have an “emergency fund”.

That said, I do kind of like the simplicity of being able to withdraw the money without triggering a taxable event. The difference in yield between a high yield savings account and a bond fund on $10K has 0% chance of impacting my life, so should I care?

Still not sure :)

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 12:59 pm

9-5 Suited wrote:
Fri Jun 01, 2018 12:57 pm
I’ve been planning on ditching my savings account for the same reasons. It’s mostly just mental accounting to have an “emergency fund”.

That said, I do kind of like the simplicity of being able to withdraw the money without triggering a taxable event. The difference in yield between a high yield savings account and a bond fund on $10K has 0% chance of impacting my life, so should I care?

Still not sure :)
True, although you're paying income tax every year on the interest accrued by your savings account...

KlangFool
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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 1:00 pm

yeahman wrote:
Fri Jun 01, 2018 12:42 pm
If I have 110% of my emergency fund needs saved up, why not put all of it in a bond fund? If I have 200% saved up, why not count it as part of my retirement savings and allocate it accordingly (e.g., 80/20)? Am I missing something? With enough saved up, why would you ever want to keep anything in a savings account?
yeahman,

<< With enough saved up, why would you ever want to keep anything in a savings account?>>

If a person's portfolio is 50 times his/her current annual expense, keeping one year of expense as the emergency fund earning nothing is no big deal.

KlangFool

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 1:03 pm

KlangFool wrote:
Fri Jun 01, 2018 1:00 pm
yeahman,

<< With enough saved up, why would you ever want to keep anything in a savings account?>>

If a person's portfolio is 50 times his/her current annual expense, keeping one year of expense as the emergency fund earning nothing is no big deal.

KlangFool
This kind of argument comes up a lot. It's true, as far as it goes. But then, why turn down a little bit of basically free money? Let's say taking the money out of your EF and investing it instead ends up making you $5,000 more at the end of your life, at almost no additional risk. Why not take a free $5k? Surely 5k is still greater than 0.

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9-5 Suited
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Re: Why have a savings account at all?

Post by 9-5 Suited » Fri Jun 01, 2018 1:08 pm

rbaldini wrote:
Fri Jun 01, 2018 12:59 pm
True, although you're paying income tax every year on the interest accrued by your savings account...
That's a good call since the bond fund would be bought in tax-advantaged and the savings account money moved to taxable stock. I just get really lazy at tax time and like to have as few sale transactions as possible. But that's a silly hang up since of course it's only a few extra clicks.

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Re: Why have a savings account at all?

Post by bloom2708 » Fri Jun 01, 2018 1:11 pm

I can see my bank from the window at work. I can bike over there and get cash in 3-5 minutes.

1-3 days from your settlement account at your broker may not be fast enough for a true emergency. Whatever that may be, I don't want to know.

You can certainly just have a checking account with a bigger balance and then "save" the rest at your broker. For some reason our checking account has a higher interest rate than a savings account. Mere pennies at brick & mortar, but it is close.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

KlangFool
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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 1:16 pm

rbaldini wrote:
Fri Jun 01, 2018 1:03 pm
KlangFool wrote:
Fri Jun 01, 2018 1:00 pm
yeahman,

<< With enough saved up, why would you ever want to keep anything in a savings account?>>

If a person's portfolio is 50 times his/her current annual expense, keeping one year of expense as the emergency fund earning nothing is no big deal.

KlangFool
This kind of argument comes up a lot. It's true, as far as it goes. But then, why turn down a little bit of basically free money? Let's say taking the money out of your EF and investing it instead ends up making you $5,000 more at the end of your life, at almost no additional risk. Why not take a free $5k? Surely 5k is still greater than 0.
rbaldini,

1) Money is a good tool but a lousy master. I use the money to live my life. It is not the other way around.

2) The question comes down to: Does it really matter? I kept 1 year of expense in checking account and Vanguard Money Market Fund earning close to nothing because it does not matter to me.

3) Beyond saving account and Vanguard money market fund, I kept gold jewelry and cash as an additional backup.

<<Why not take a free $5k? Surely 5k is still greater than 0.>>

4) If it matters to you.

KlangFool

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JoMoney
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Re: Why have a savings account at all?

Post by JoMoney » Fri Jun 01, 2018 1:22 pm

yeahman wrote:
Fri Jun 01, 2018 12:42 pm
... why would you ever want to keep anything in a savings account?
Liquidity. I can transfer money to my checking, or even withdraw cash 24/7 at an ATM from savings account.
I can only initiate a transfer from my bond-fund account on days the market is open, and there is potential for the fund to be frozen for a period of time in certain situations.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 1:26 pm

KlangFool wrote:
Fri Jun 01, 2018 1:16 pm

1) Money is a good tool but a lousy master. I use the money to live my life. It is not the other way around.

2) The question comes down to: Does it really matter? I kept 1 year of expense in checking account and Vanguard Money Market Fund earning close to nothing because it does not matter to me.

3) Beyond saving account and Vanguard money market fund, I kept gold jewelry and cash as an additional backup.

<<Why not take a free $5k? Surely 5k is still greater than 0.>>

4) If it matters to you.

KlangFool
Suppose you have $1 million in taxable accounts, in stocks and bonds - say, 60/40 stock/bond. You decide that, if you did ever keep a savings account, you'd keep $50k. I.e., you want to virtually guarantee that you can access $50k at any time.

Now, what is the probability that you won't be able to sell $50k worth of stocks and bonds this year when you currently own $1 million? No one knows, but it would require that a 60/40 fund drop in value by more than 95%. This would be an unprecedented failure in the market so great that it would almost render all other considerations irrelevant. So, to my mind, there is *virtually no downside to not keeping a savings account at all*, in that situation, and very likely would return some small additional amount at the end of your life.

Why would you choose not to do this (assuming you were in that situation)? What is the wisdom of turning down a virtually free small gain? Is $5k such a small amount to you that it's not worth the time? How is it "letting money be your master" by making a simple decision that will almost certainly be a benefit to you? Seems to me you're playing a "wisdom" card here that doesn't really make sense.

The "I can get cash more quickly if it's in a bank" argument *does* make sense to me.

LiterallyIronic
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Re: Why have a savings account at all?

Post by LiterallyIronic » Fri Jun 01, 2018 1:30 pm

yeahman wrote:
Fri Jun 01, 2018 12:42 pm
If I have 110% of my emergency fund needs saved up
I keep my emergency fund in my brick and mortar bank, some of it in checking and some in savings. There's something to be said for being able to walk into a branch at a moments notice and grab cash to pay for anything that could come up. That liquidity, along with the other services offered by my bank, is why I have a savings account. I also have my mortgage through them so I can just walk in and have a teller transfer money from checking to my mortgage - a service I find is more valuable than shopping around for mortgage rates / closing costs.

That being said, you probably won't find anyone else in this forum touting banking at the large, national bank chains. :wink:

yeahman
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Re: Why have a savings account at all?

Post by yeahman » Fri Jun 01, 2018 1:38 pm

1. I don't mean not having a checking account. Just not a savings account.

2. My credit cards provide more than enough liquidity for the few days it could take to liquidate my investments. If I need a cash advance, this strategy could cost me but not much and it's rare so I'd still probably come out ahead.

3. "Leaving a little money on the table isn't so bad" is a really bad reason to leave a little money on the table.

KlangFool
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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 1:45 pm

rbaldini wrote:
Fri Jun 01, 2018 1:26 pm

Suppose you have $1 million in taxable accounts, in stocks and bonds - say, 60/40 stock/bond. You decide that, if you did ever keep a savings account, you'd keep $50k. I.e., you want to virtually guarantee that you can access $50k at any time.

Now, what is the probability that you won't be able to sell $50k worth of stocks and bonds this year when you currently own $1 million? No one knows, but it would require that a 60/40 fund drop in value by more than 95%. This would be an unprecedented failure in the market so great that it would almost render all other considerations irrelevant. So, to my mind, there is *virtually no downside to not keeping a savings account at all*, in that situation, and very likely would return some small additional amount at the end of your life.

Why would you choose not to do this (assuming you were in that situation)? What is the wisdom of turning down a virtually free small gain? Is $5k such a small amount to you that it's not worth the time? How is it "letting money be your master" by making a simple decision that will almost certainly be a benefit to you? Seems to me you're playing a "wisdom" card here that doesn't really make sense.

The "I can get cash more quickly if it's in a bank" argument *does* make sense to me.
rbaldini,

1) I have about 500K in my taxable account. It is 100% stock.

2) I have 90K in the emergency fund. 30K for half year college funding for 2 kids and 60K for the 1-year expense.

<<I.e., you want to virtually guarantee that you can access $50k at any time.

Now, what is the probability that you won't be able to sell $50k worth of stocks and bonds this year when you currently own $1 million?>>

3) I am not interested in dealing with probability. I know I have 90K that I can access any time. If it is worth your effort, go right ahead.

<<The "I can get cash more quickly if it's in a bank" argument *does* make sense to me.>>

4) I keep at least one thousand cash at home.

5) By the way, my AA is 61/39.

6) To each its own. Some folks are optimizers. They will optimize their portfolio to the nth degree. Meanwhile, others will stop at good enough.

KlangFool

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 1:54 pm

To get a sense of the long-term difference, consider the following two strategies.

1) EF: You put $50k into a savings account with 2% interest. At the end of the year, the earnings from this account are invested into a stock/bond mix returning 5% annually. This ensures that your savings account is rebalanced to $50k every year.

2) No EF: You put all $50k into the stock/bond mix returning 5% annually; no savings account at all.

Clearly the 2nd option will provide a greater long-term return. How much more? After 30 years, the difference is $99,658.27. That's before tax, but you get the idea (and stocks are more tax efficient in the long term than interest). It's not a tiny amount.

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Re: Why have a savings account at all?

Post by MnD » Fri Jun 01, 2018 1:58 pm

I recently concluded that I did not need a bank savings account and closed both our brick and mortar and "high yield" online ones along with closing brick and mortar checking. My brokerage has a very nice checking account linked to brokerage account.
Given that the brokerage account supports check-writing, ATM card and direct deposit I didn't really even need the paired checking account, but I am used to checking and savings so I will try this setup for a bit before considering dumping the checking account.
Liquidity is not an issue between margin, credit cards, free anywhere ATM card, cash balance in brokerage awaiting investment due to regular direct deposits and instant transfers to checking. The I can get bank cash more quickly deal makes no sense at all. And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.

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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 2:03 pm

rbaldini wrote:
Fri Jun 01, 2018 1:54 pm
To get a sense of the long-term difference, consider the following two strategies.

1) EF: You put $50k into a savings account with 2% interest. At the end of the year, the earnings from this account are invested into a stock/bond mix returning 5% annually. This ensures that your savings account is rebalanced to $50k every year.

2) No EF: You put all $50k into the stock/bond mix returning 5% annually; no savings account at all.

Clearly the 2nd option will provide a greater long-term return. How much more? After 30 years, the difference is $99,658.27. That's before tax, but you get the idea (and stocks are more tax efficient in the long term than interest). It's not a tiny amount.
rbaldini,

1) That matters to you. It does not to me.

2) It is 90K of the emergency fund versus the main portfolio of 1.2 million.

3) I do not have 30 years. I hope to early retire over the next 5 years.

KlangFool

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 2:17 pm

KlangFool wrote:
Fri Jun 01, 2018 2:03 pm
3) I do not have 30 years. I hope to early retire over the next 5 years.
The comment was not directed at you. Just a general comment.
Last edited by rbaldini on Fri Jun 01, 2018 2:43 pm, edited 1 time in total.

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JoMoney
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Re: Why have a savings account at all?

Post by JoMoney » Fri Jun 01, 2018 2:21 pm

yeahman wrote:
Fri Jun 01, 2018 1:38 pm
...
2. My credit cards provide more than enough liquidity for the few days it could take to liquidate my investments. If I need a cash advance, this strategy could cost me but not much and it's rare so I'd still probably come out ahead. ...
Things happen:
https://www.independent.co.uk/life-styl ... 79381.html
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

yeahman
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Re: Why have a savings account at all?

Post by yeahman » Fri Jun 01, 2018 2:39 pm

JoMoney wrote:
Fri Jun 01, 2018 2:21 pm
Things happen:
https://www.independent.co.uk/life-styl ... 79381.html
So carry a Mastercard too. Problem solved.

H-Town
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Re: Why have a savings account at all?

Post by H-Town » Fri Jun 01, 2018 2:53 pm

rbaldini wrote:
Fri Jun 01, 2018 1:54 pm
To get a sense of the long-term difference, consider the following two strategies.

1) EF: You put $50k into a savings account with 2% interest. At the end of the year, the earnings from this account are invested into a stock/bond mix returning 5% annually. This ensures that your savings account is rebalanced to $50k every year.

2) No EF: You put all $50k into the stock/bond mix returning 5% annually; no savings account at all.

Clearly the 2nd option will provide a greater long-term return. How much more? After 30 years, the difference is $99,658.27. That's before tax, but you get the idea (and stocks are more tax efficient in the long term than interest). It's not a tiny amount.
Thing is the reality does not work the way you plan. How often is it that you get a constant 5% return every year? The return can range from -50% to 30%. There's a chance that all bad things will happen at once. Remember Murphy's laws? All bad things that can happen, will happen.

Again, to each his own. I'm an optimizer. I will get every penny of return I can. My wife is very chill. She likes to keep $10-20k in checking account at Chase with next to 0 return. So I guess between me and her, we end up somewhere in the middle of the spectrum.

ND Fan 1
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Re: Why have a savings account at all?

Post by ND Fan 1 » Fri Jun 01, 2018 2:59 pm

I keep around $25-30K in liquid cash, that I then moved around to qualify for bank bonuses. A lot of accounts will pay you $200 after doing a Direct deposit, but you have to keep a min balance of say $500-$1500 for 6 months before you can close. So I receive the bonus ,then leave the min balance in there for 6 months. Then close the account and move on. Between my wife and I, we have about 10-15 accounts open at any one time. So I at least put my cash to work for me. If I didn't chase bonuses, I don't think I would keep more than $5K or so in checking for liquidity.

After taxes and less lost interest, a $200 bonus is net $150 or so.

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Re: Why have a savings account at all?

Post by Cycle » Fri Jun 01, 2018 3:04 pm

I get 2% on up to 25k in my checking. I count cash and bonds together in my AA. I include my emergency fund in my AA. I keep 6 months expenses in my checking account, 20k.

3504PIR
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Re: Why have a savings account at all?

Post by 3504PIR » Fri Jun 01, 2018 3:06 pm

Everyone has situations specific to them, so do what works best for you. I prefer to keep my savings in a savings account with my bank and in I bonds, but I don't fool myself that I'll get the funds from the I bonds in a timely manner so I lean toward the savings account where I can access those funds that day. If I were willing to set it up where I used a credit card and could wait 4-5 days for the funds, then I'd consider other options. To each their own - as long as we understand the limitations of what we are doing or thinking of doing.

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Epsilon Delta
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Re: Why have a savings account at all?

Post by Epsilon Delta » Fri Jun 01, 2018 3:09 pm

JoMoney wrote:
Fri Jun 01, 2018 2:21 pm
yeahman wrote:
Fri Jun 01, 2018 1:38 pm
...
2. My credit cards provide more than enough liquidity for the few days it could take to liquidate my investments. If I need a cash advance, this strategy could cost me but not much and it's rare so I'd still probably come out ahead. ...
Things happen:
https://www.independent.co.uk/life-styl ... 79381.html
Things happen to banks and ATM cards too. It seems like a good idea to have a few $1000 in a bank, maybe even two banks, so there is an extra chance of being able to get some cash at short notice, but that doesn't mean you need six (or twelve) months expenses in a bank. And even if you did at least for some savings accounts if you go in and ask for $90k cash they will tell you to come back in a few days.

mptfan
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Re: Why have a savings account at all?

Post by mptfan » Fri Jun 01, 2018 3:23 pm

MnD wrote:
Fri Jun 01, 2018 1:58 pm
And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.
You can't bail out of jail with a credit card.

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Re: Why have a savings account at all?

Post by Darth Xanadu » Fri Jun 01, 2018 3:24 pm

mptfan wrote:
Fri Jun 01, 2018 3:23 pm
MnD wrote:
Fri Jun 01, 2018 1:58 pm
And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.
You can't bail out of jail with a credit card.
Unless you're MacGyver.
"A courageous teacher, failure is."

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bligh
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Re: Why have a savings account at all?

Post by bligh » Fri Jun 01, 2018 3:26 pm

mptfan wrote:
Fri Jun 01, 2018 3:23 pm
MnD wrote:
Fri Jun 01, 2018 1:58 pm
And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.
You can't bail out of jail with a credit card.
In the off chance I did something stupid enough, and to then get caught, to end up in jail. I think it would suit me to stay a couple of extra nights in jail as I wait for the money from my brokerage to transfer to my checking. :wink:

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whodidntante
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Re: Why have a savings account at all?

Post by whodidntante » Fri Jun 01, 2018 3:28 pm

I don't think you should. I don't even have a checking account, unless you count the organizations I take bank bonus money from, and my various brokerage accounts that allow checkwriting. At this point checks are an anachronism in the USA, despite technology props like taking a picture of a piece of paper with your phone. It's defunct elsewhere.
Last edited by whodidntante on Fri Jun 01, 2018 3:28 pm, edited 1 time in total.

mptfan
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Re: Why have a savings account at all?

Post by mptfan » Fri Jun 01, 2018 3:28 pm

bligh wrote:
Fri Jun 01, 2018 3:26 pm
mptfan wrote:
Fri Jun 01, 2018 3:23 pm
MnD wrote:
Fri Jun 01, 2018 1:58 pm
And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.
You can't bail out of jail with a credit card.
In the off chance I did something stupid enough, and to then get caught, to end up in jail. I think it would suit me to stay a couple of extra nights in jail as I wait for the money from my brokerage to transfer to my checking. :wink:
How are you going to initiate the transfer from your jail cell?

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 3:31 pm

thangngo wrote:
Fri Jun 01, 2018 2:53 pm
Thing is the reality does not work the way you plan. How often is it that you get a constant 5% return every year? The return can range from -50% to 30%. There's a chance that all bad things will happen at once. Remember Murphy's laws? All bad things that can happen, will happen.

Again, to each his own. I'm an optimizer. I will get every penny of return I can. My wife is very chill. She likes to keep $10-20k in checking account at Chase with next to 0 return. So I guess between me and her, we end up somewhere in the middle of the spectrum.
I chose to ignore volatility because of the long timescale. Obviously there is plenty of uncertainty, but it's an average estimate. Over a 30 year period, it is extremely unlikely that stocks would return -50% annually or 30% annually on average. Law of large numbers kick in. So, the idea was to get a ball-park estimate of the difference between the two.

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Re: Why have a savings account at all?

Post by whodidntante » Fri Jun 01, 2018 3:35 pm

mptfan wrote:
Fri Jun 01, 2018 3:28 pm
bligh wrote:
Fri Jun 01, 2018 3:26 pm
mptfan wrote:
Fri Jun 01, 2018 3:23 pm
MnD wrote:
Fri Jun 01, 2018 1:58 pm
And furthermore, most people are broke and the tow truck operators, court systems, emergency cleanup crews and urgent care people all know this and that's why they all take credit cards now.
You can't bail out of jail with a credit card.
In the off chance I did something stupid enough, and to then get caught, to end up in jail. I think it would suit me to stay a couple of extra nights in jail as I wait for the money from my brokerage to transfer to my checking. :wink:
How are you going to initiate the transfer from your jail cell?
Sometimes people have other people who can help them out, in exchange for money, gifts, and quid pro quo later. You can also hire people to help you, if you don't like buying gifts.

KlangFool
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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 3:39 pm

rbaldini wrote:
Fri Jun 01, 2018 2:17 pm
KlangFool wrote:
Fri Jun 01, 2018 2:03 pm
3) I do not have 30 years. I hope to early retire over the next 5 years.
The comment was not directed at you. Just a general comment.
rbaldini,

It is a general response to your comment too. When someone's portfolio is big enough, he/she will not be 30 years from retirement/FI.

KlangFool

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 3:45 pm

KlangFool wrote:
Fri Jun 01, 2018 3:39 pm
rbaldini,

It is a general response to your comment too. When someone's portfolio is big enough, he/she will not be 30 years from retirement/FI.

KlangFool
In my estimation, my taxable account is large enough to render a savings account unnecessary for me. I am 31 years old. It depends on the person.

jeep5ter
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Re: Why have a savings account at all?

Post by jeep5ter » Fri Jun 01, 2018 3:46 pm

My emergency fund is in a short term municipal bond fund that allows check writing. Interest is tax free and the volatility is low.

H-Town
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Re: Why have a savings account at all?

Post by H-Town » Fri Jun 01, 2018 3:46 pm

rbaldini wrote:
Fri Jun 01, 2018 3:31 pm
thangngo wrote:
Fri Jun 01, 2018 2:53 pm
Thing is the reality does not work the way you plan. How often is it that you get a constant 5% return every year? The return can range from -50% to 30%. There's a chance that all bad things will happen at once. Remember Murphy's laws? All bad things that can happen, will happen.

Again, to each his own. I'm an optimizer. I will get every penny of return I can. My wife is very chill. She likes to keep $10-20k in checking account at Chase with next to 0 return. So I guess between me and her, we end up somewhere in the middle of the spectrum.
I chose to ignore volatility because of the long timescale. Obviously there is plenty of uncertainty, but it's an average estimate. Over a 30 year period, it is extremely unlikely that stocks would return -50% annually or 30% annually on average. Law of large numbers kick in. So, the idea was to get a ball-park estimate of the difference between the two.
Then, you're looking at the wrong thing. Long-term risk primarily involves in not saving enough. Putting some cash in the bank or under blanket won't make a dent to your wealth 30 year later.

KlangFool
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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 3:58 pm

rbaldini wrote:
Fri Jun 01, 2018 3:45 pm
KlangFool wrote:
Fri Jun 01, 2018 3:39 pm
rbaldini,

It is a general response to your comment too. When someone's portfolio is big enough, he/she will not be 30 years from retirement/FI.

KlangFool
In my estimation, my taxable account is large enough to render a savings account unnecessary for me. I am 31 years old. It depends on the person.
rbaldini,

In my context, "large enough" means that the person can FI in a few years.

KlangFool

CnC
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Re: Why have a savings account at all?

Post by CnC » Fri Jun 01, 2018 4:14 pm

rbaldini wrote:
Fri Jun 01, 2018 1:54 pm
To get a sense of the long-term difference, consider the following two strategies.

1) EF: You put $50k into a savings account with 2% interest. At the end of the year, the earnings from this account are invested into a stock/bond mix returning 5% annually. This ensures that your savings account is rebalanced to $50k every year.

2) No EF: You put all $50k into the stock/bond mix returning 5% annually; no savings account at all.

Clearly the 2nd option will provide a greater long-term return. How much more? After 30 years, the difference is $99,658.27. That's before tax, but you get the idea (and stocks are more tax efficient in the long term than interest). It's not a tiny amount.
I just do not agree. Having 5k cash and 550k investments doesn't give you the same flexibility nor utility as 30k cash and 525k investments. It just is not the same thing.


Your suggestion is like saying look at putting your money in the sp500 for 30 years at 10.5% growth vs putting money in bonds for 30 years at 4.5% growth. You are losing tons of money not going 100% in stocks. It's a case where your math is correct but it is not relevant.

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ruralavalon
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Re: Why have a savings account at all?

Post by ruralavalon » Fri Jun 01, 2018 4:29 pm

yeahman wrote:
Fri Jun 01, 2018 12:42 pm
If I have 110% of my emergency fund needs saved up, why not put all of it in a bond fund? If I have 200% saved up, why not count it as part of my retirement savings and allocate it accordingly (e.g., 80/20)? Am I missing something? With enough saved up, why would you ever want to keep anything in a savings account?
A FDIC insured savings account is a little more secure than a good credit quality bond fund.

A bank savings account is a little more liquid than a mutual fund, you can get the cash immediately rather than two days later.

We are age 72, and retired.

We do not currently have a savings account, or other cash reserve equivalent, anywhere. We have only a small joint checking account to pay bills, high limit credit cards, debit cards, and our large investing accounts.

When younger we did a have bank savings accounts to save for emergencies and short-term goals.

A savings account will at most keep up with inflation, and may give a negative real return net of inflation. So with "enough saved up" I feel it's okay not to hold a large cash hoard as a dedicated "emergency fund".
Last edited by ruralavalon on Fri Jun 01, 2018 4:39 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 4:39 pm

KlangFool wrote: In my context, "large enough" means that the person can FI in a few years.
For me, "large enough" means that it is no longer necessary to have a separate bucket of cash to ensure that you can access some necessary amount at any time. If you have $200k saved in a taxable account, you almost certainly do not need to have a separate EF of $20k, for example. A smart allocation of stocks and bonds will never drop that low.
CnC wrote: I just do not agree. Having 5k cash and 550k investments doesn't give you the same flexibility nor utility as 30k cash and 525k investments. It just is not the same thing.

Your suggestion is like saying look at putting your money in the sp500 for 30 years at 10.5% growth vs putting money in bonds for 30 years at 4.5% growth. You are losing tons of money not going 100% in stocks. It's a case where your math is correct but it is not relevant.
It's really simple. How much money are you missing out on by keeping $50k in a savings account for 30 years, when it could be invested in stocks/bonds and returning much more? Obviously we don't know exactly what will happen. I used an estimated long-term return rate to give an approximate answer. The actual amount earned might be very different. But, generally speaking, the amount of money you miss out on is probably more than $50,000 (my estimate was actually closer to $100k, but I'll be even more conservative). If $50,000 is such a small amount to you that it's not worth the few minutes to implement this strategy, then fine. I'm not that rich.

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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 4:42 pm

rbaldini wrote:
Fri Jun 01, 2018 4:39 pm
KlangFool wrote: In my context, "large enough" means that the person can FI in a few years.
For me, "large enough" means that it is no longer necessary to have a separate bucket of cash to ensure that you can access some necessary amount at any time. If you have $200k saved in a taxable account, you almost certainly do not need to have a separate EF of $20k, for example. A smart allocation of stocks and bonds will never drop that low.
rbaldini,

Will you feel the same if you are a few years from FI? That was my question.

KlangFool

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dwickenh
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Re: Why have a savings account at all?

Post by dwickenh » Fri Jun 01, 2018 4:43 pm

KlangFool wrote:
Fri Jun 01, 2018 3:58 pm
rbaldini wrote:
Fri Jun 01, 2018 3:45 pm
KlangFool wrote:
Fri Jun 01, 2018 3:39 pm
rbaldini,

It is a general response to your comment too. When someone's portfolio is big enough, he/she will not be 30 years from retirement/FI.

KlangFool
In my estimation, my taxable account is large enough to render a savings account unnecessary for me. I am 31 years old. It depends on the person.
rbaldini,

In my context, "large enough" means that the person can FI in a few years.

KlangFool
I have no judgement on which of you is correct. I don't think there is a correct answer to the question. But it is fun to read the back and forth.

:sharebeer
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 4:47 pm

dwickenh wrote:
Fri Jun 01, 2018 4:43 pm
KlangFool wrote:
Fri Jun 01, 2018 3:58 pm
rbaldini wrote:
Fri Jun 01, 2018 3:45 pm
KlangFool wrote:
Fri Jun 01, 2018 3:39 pm
rbaldini,

It is a general response to your comment too. When someone's portfolio is big enough, he/she will not be 30 years from retirement/FI.

KlangFool
In my estimation, my taxable account is large enough to render a savings account unnecessary for me. I am 31 years old. It depends on the person.
rbaldini,

In my context, "large enough" means that the person can FI in a few years.

KlangFool
I have no judgement on which of you is correct. I don't think there is a correct answer to the question. But it is fun to read the back and forth.

:sharebeer
dwickenh,

I am not trying to prove who is correct. I am just providing a different point of view. There is a point when the amount in the emergency fund as compared to the overall portfolio is too small to matter. Some folks may choose to optimize that. While others may just say that it is good enough.

More money equal to freedom to choose.

KlangFool

Flyer24
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Re: Why have a savings account at all?

Post by Flyer24 » Fri Jun 01, 2018 4:48 pm

If you are married, it should be a joint decision with your spouse. My wife knows very little about investments. If something were to happen to me tomorrow, she needs to have quick easy access to funds for necessary expenses (funeral). It shouldn’t all be about making money. I have some of my EF in a CD at the local bank and the rest in an Ally account. I care more about her piece of mind in a tough situation than making a few extra bucks.

rbaldini
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Re: Why have a savings account at all?

Post by rbaldini » Fri Jun 01, 2018 4:54 pm

KlangFool wrote:
Fri Jun 01, 2018 4:42 pm
Will you feel the same if you are a few years from FI? That was my question.
If I am going to withdraw all that money in a just a few years, then of course the effect will be much smaller than what I calculated. If someone in that position (like yourself, presumably) doesn't see the value, that's fine with me. But it looked like you were suggesting that the only time one should do away with a EF is if they are only a few years away from retirement, which just isn't true, IMO. Even if your EF is a small proportion of your total worth, investing it could add up to tens of thousands over a long time period. Nothing to scoff at.

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Re: Why have a savings account at all?

Post by KlangFool » Fri Jun 01, 2018 4:59 pm

rbaldini wrote:
Fri Jun 01, 2018 4:54 pm
KlangFool wrote:
Fri Jun 01, 2018 4:42 pm
Will you feel the same if you are a few years from FI? That was my question.
If I am going to withdraw all that money in a just a few years, then of course the effect will be much smaller than what I calculated. If someone in that position (like yourself, presumably) doesn't see the value, that's fine with me. But it looked like you were suggesting that the only time one should do away with a EF is if they are only a few years away from retirement, which just isn't true, IMO. Even if your EF is a small proportion of your total worth, investing it could add up to tens of thousands over a long time period. Nothing to scoff at.
rbaldini,

As per your current opinion. Which may not be shared by others. And, you may change your mind in the future when your portfolio is much larger.

My portfolio goes up and down by thousands every day. It (thousands) had lost its meaning to me. And, there will be a point when it is no longer significant to you.

KlangFool

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