"emergency" fund earning .5%

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Indianrock
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"emergency" fund earning .5%

Post by Indianrock »

This account is at Capone 360 ( can I mention that? ) and is probably at least twice as large as really needed ( $100k balance). But at 72 with our stock/bond investments already at about 65 % stock, 35% bond I was reluctant to put more there ( this is almost all Vanguard mutual fund traditional IRA -- around $750k now)
We haven't needed to touch anything at Vanguard, living off pension and SS income. Zero debt, no mortgage.

Bankrate showed a 5-year CD at .8% , hardly worth the bother of switching. Should I consider putting some of the "emergency" fund at Vanguard? We're done with real estate. We helped my son and wife buy their current home and we live rent-free in an attached "apartment" space. Six years so far, zero problems and lots of grand-kid time.
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CascadiaSoonish
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Re: "emergency" fund earning .5%

Post by CascadiaSoonish »

Lots of similar threads already about this. But specific to your situation, doesn't sound like moving the money is going to gain you much or be worth the hassle if you don't really have a specific reason to take additional risk with a more growth-oriented position.
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Re: "emergency" fund earning .5%

Post by Jack FFR1846 »

Ally's at 0.8%, but of course, they could drop any time. Shrug.
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BradJ
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Re: "emergency" fund earning .5%

Post by BradJ »

I will be following this closely. At this time, we have an emergency fund of $65,000. I have considered putting 6,000 in a ROTH IRA (we are already maxing out one), possibly doing that until the account get's to 45-50k.
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Brianmcg321
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Re: "emergency" fund earning .5%

Post by Brianmcg321 »

That’s a really large emergency fund just sitting in cash.

My emergency fund is $50k. 1/2 in a bank savings account, 1/2 in the Vanguard Balanced index in a taxable account.
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Re: "emergency" fund earning .5%

Post by abuss368 »

Interest rates on cash are so low often it is not even worth the hassle of switching or rate shopping. I look at cash as insurance and safety. That is: there when you need it. Any return is a second consideration.

I would keep an amount in cash that lets you sleep well at night and invest the rest in stocks and bonds according to your asset allocation.
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KingRiggs
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Re: "emergency" fund earning .5%

Post by KingRiggs »

If you truly are "living off pension, SS income", then that is way too big of an emergency fund.

If the thought of sending half or more of that emergency fund to your investments at Vanguard gives you pause, then you need to re-think your AA...
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ruralavalon
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Re: "emergency" fund earning .5%

Post by ruralavalon »

Indianrock wrote: Tue Sep 22, 2020 11:18 am This account is at Capone 360 ( can I mention that? ) and is probably at least twice as large as really needed ( $100k balance). But at 72 with our stock/bond investments already at about 65 % stock, 35% bond I was reluctant to put more there ( this is almost all Vanguard mutual fund traditional IRA -- around $750k now)
We haven't needed to touch anything at Vanguard, living off pension and SS income. Zero debt, no mortgage.

Bankrate showed a 5-year CD at .8% , hardly worth the bother of switching. Should I consider putting some of the "emergency" fund at Vanguard? We're done with real estate. We helped my son and wife buy their current home and we live rent-free in an attached "apartment" space. Six years so far, zero problems and lots of grand-kid time.
Overall you are currently about 42% fixed income. (35% of $750k IRA in bonds + $100k cash).

My suggestion is to move nearly all (or a large part of) the emergency fund cash to a taxable account at Vanguard, investing in very tax-efficient stock index funds, and in your traditional IRA increase the bond allocation.

In effect add the cash to the bond allocation, so that your overall asset allocation is at least as conservative as the the current 58/42 asset allocation.
Last edited by ruralavalon on Tue Sep 22, 2020 11:53 am, edited 1 time in total.
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Re: "emergency" fund earning .5%

Post by NYCPete »

Indianrock wrote: Tue Sep 22, 2020 11:18 am This account is at Capone 360 ( can I mention that? ) and is probably at least twice as large as really needed ( $100k balance). But at 72 with our stock/bond investments already at about 65 % stock, 35% bond I was reluctant to put more there ( this is almost all Vanguard mutual fund traditional IRA -- around $750k now)
We haven't needed to touch anything at Vanguard, living off pension and SS income. Zero debt, no mortgage.

Bankrate showed a 5-year CD at .8% , hardly worth the bother of switching. Should I consider putting some of the "emergency" fund at Vanguard? We're done with real estate. We helped my son and wife buy their current home and we live rent-free in an attached "apartment" space. Six years so far, zero problems and lots of grand-kid time.
So, CapOne did a quiet bait and switch to existing customers about a year or year and half ago. They started offering "360 Performance Savings," which is currently offering 0.65%, and when it first opened had a higher rate than all other savings accounts at CapOne. Of course, they didn't tell us existing customers, they only promoted it to new customers. There was, and still is, nothing that prevents you from opening up this account and moving your $100K over to it. 0.15% is not nothing for a $100K account, and it's much easier than opening a new account at a new bank.

What made me really furious at the time was the no minimum to open a performance savings account, and it was offering a better rate than the money market savings account that required $10K to open and maintain. I'm sure CapOne is saving a ton of money on its customers who never noticed their savings are sitting in old legacy accounts getting a lower rate than newer customers.

Best,
Peter
Last edited by NYCPete on Tue Sep 22, 2020 11:51 am, edited 1 time in total.
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atdharris
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Re: "emergency" fund earning .5%

Post by atdharris »

Jack FFR1846 wrote: Tue Sep 22, 2020 11:27 am Ally's at 0.8%, but of course, they could drop any time. Shrug.
I am actually surprised they have not dropped it yet given Marcus bank and Amex both lowered theirs to 0.6% last week.
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Re: "emergency" fund earning .5%

Post by willthrill81 »

There is more benefit in moving funds around to take advantage of bank and brokerage account bonuses than spending much effort moving around funds for interest alone.
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Dandy
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Re: "emergency" fund earning .5%

Post by Dandy »

E fund is primarily geared for safety and liquidity not yield or growth. You seem to be in a good financial shape and have a favorable living situation. Enjoy the grandkids and don't fret about the E fund's low earnings. :D
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Indianrock
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Re: "emergency" fund earning .5%

Post by Indianrock »

Thanks for all the great input. I had forgotten that the 100k E-fund should be included in the bond/fixed component of my asset allocation. We do have a taxable account ( Vanguard calls it a brokerage account) where RMDs have been going. It's in
Vanguard Total Stock Market Index Fund Admiral Shares VTSAX
So I will consider moving some of the E fund there.
Wife doesn't want to make any changes until after the election and we see what if anything may change about social security and the payroll tax.
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Iorek
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Re: "emergency" fund earning .5%

Post by Iorek »

You could roll $20k per year over to i-bonds and get guaranteed inflation protection plus probably a better interest rate than you are getting now. (Personally I think the complaints about the Treasury Direct website are outdated/overblown but ymmv).
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Re: "emergency" fund earning .5%

Post by patrick »

If you want to keep the money in cash you don't need to settle for sub-1% interest. See https://www.doctorofcredit.com/high-int ... gs-to-get/ for a fairly updated list of the best accounts. Some of the best for your situation would look like:

1.11% at National Cooperative. This account a $25,000 minimum which should be no problem in this case.

3% at HMBradley. This account has a $100,000 maximum, so you might want to keep a little outside to avoid going over. Getting the top rate also requires you to have a direct deposit (pension and SS should qualify). It also requires saving at least 20% of deposits (evaluated quarterly) so you might want to split your deposits between this and a smaller account for everyday spending.
regularguy455
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Re: "emergency" fund earning .5%

Post by regularguy455 »

We’re in the midst of a long term, low rate environment. The only way to increase yield is to get more exposure to higher risk assets. You may consider putting your EF into a mixture of stocks/bonds at a conservative allocation.
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Re: "emergency" fund earning .5%

Post by invest4 »

willthrill81 wrote: Tue Sep 22, 2020 12:12 pm There is more benefit in moving funds around to take advantage of bank and brokerage account bonuses than spending much effort moving around funds for interest alone.
This. Requires some effort and patience of course, but I find the payoffs well worth it.
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Re: "emergency" fund earning .5%

Post by tibbitts »

Indianrock wrote: Wed Sep 23, 2020 7:01 am Thanks for all the great input. I had forgotten that the 100k E-fund should be included in the bond/fixed component of my asset allocation. We do have a taxable account ( Vanguard calls it a brokerage account) where RMDs have been going. It's in
Vanguard Total Stock Market Index Fund Admiral Shares VTSAX
So I will consider moving some of the E fund there.
Wife doesn't want to make any changes until after the election and we see what if anything may change about social security and the payroll tax.
I don't think the input has been all that great, only because there are no great alternatives.

If you're saying move some of this cash to VTSAX, that's a horrible idea. You have the money in cash for a reason. You're going from one extreme of the (nominal) principal safety scale to the other. You don't say much about your finances but I'm guessing you have a large enough portfolio that a $100k emergency fund isn't all that much. Of course we're all tempted to do something because it's frustrating, especially having lived through times when we could earn real interest on cash.

You didn't say that you were still working, but apparently you are since you're thinking about the payroll tax. What do you think are the odds of anything happening to social security or the payroll tax over the next election cycle that would be significance to you personally? And whatever happens as the result of the election, you won't know about it on election day, or even by the end of the year.
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Indianrock
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Re: "emergency" fund earning .5%

Post by Indianrock »

Tibbitts: I'm retired but the future of SS and the payroll tax may be different depending on the outcome of the election. I thought my original post gave enough detail about my finances, but basically I'm saying the emergency fund is probably too large and some of it should be elsewhere. VTSAX just happens to be where our taxable/brokerage accounts sits now. If I decided to move some of the E fund to a taxable fund, it might very well be something other than VTSAX. I can't picture myself shrinking the E fund below $50k and I'll just have to figure out if searching for a slightly better interest rate is worth the effort.
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BL
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Re: "emergency" fund earning .5%

Post by BL »

I am older than you, but perhaps consider that all of your assets (or most) are accessible if you need them rather than separating out a large emergency fund. So if you consider just stocks vs. fixed income, it may be easier to visualize what you want it to look like. Our fixed income has now been going mostly into cash-like banking items like CDs, savings accounts, etc, because the bonds just seem too variable for the small interest available. We don't want to add many extra banks/CUs for a tiny bit more interest. We still have a bit of Star and Wellesley with bonds so there are still some bonds.

By the way, if you are charitably inclined, QCDs for part/all of your RMDs are a great way to draw RMDs without owing tax on it.

Agree that I-bonds are worth considering. We got rid of ours because I have read that heirs may have some difficulty with them; otherwise they are fine, don't yield much at this time but at least they will keep up with inflation automatically. They won't send tax statements (on sales) by mail, so one has to go online for that to TreasuryDirect.gov
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