What do you recommend for your emergency fund?

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jbsmith05
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What do you recommend for your emergency fund?

Post by jbsmith05 » Wed Jul 13, 2016 2:06 pm

Right now my 6 - 12 month expense emergency fund is in a generic savings account - making nearly no money...and zero risk.

What do you recommend as a good investment vehicle for an emergency fund that will provide some returns, but of course won't loose money either (well of course any investment can loose money, but in this case you get what I mean - low risk).

At my credit union they have a money market that lists the current interest rate at 1.00% / 1.01% APY with Dividends compounded daily, paid monthly. But there is no check writing or ACH.

jay22
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Re: What do you recommend for your emergency fund?

Post by jay22 » Wed Jul 13, 2016 2:12 pm

I use Ally bank for my emergency fund. Never had a problem with transfers (both in and out); works flawlessly.

jjface
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Re: What do you recommend for your emergency fund?

Post by jjface » Wed Jul 13, 2016 2:14 pm

1% online accounts like Ally.

A reward checking account. I have one at myconsumers credit union earning 4.5% on $20k if you also use their credit card. Max 3% on $10k if you don't. More work though.

Mango and/insight prepaid cards with 5%ish linked savings accounts max $5k. However netspend recently reduced the max balance earning interest on theirs so these may also follow with the same.

Reaally though keep your emergency fund safe and liquid. The return is largely irrelevant -1% is decent.

jbsmith05
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Re: What do you recommend for your emergency fund?

Post by jbsmith05 » Wed Jul 13, 2016 2:16 pm

jay22 wrote:I use Ally bank for my emergency fund. Never had a problem with transfers (both in and out); works flawlessly.


Thanks for the feedback!
I looked at Ally - seems to be about the same as my credit union with a 1% for Savings and .85% for MM. Aside from some additional features like mobile check deposit, etc which probably wouldn't come into play for an emergency fund. It may not be worth the effort for me to add another institution to my list!

QuietProsperity
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Re: What do you recommend for your emergency fund?

Post by QuietProsperity » Wed Jul 13, 2016 2:23 pm

I don't think there is anything wrong with parking it at Ally bank in a savings account. 1%, very seamless to transfer to other accounts, etc.

Going down the "good investment vehicle" route with emergency savings can get slippery. Some people will keep it in short to inter term muni funds, some will do cds/mmf, some will just keep it in cash at a bank like Ally.

Find what you are comfortable with and leave it alone. The whole point of an emergency fund is so that it can be used rather quickly, not to "make any money". I prefer to keep it in a savings account like Ally, but that is just me.

jbsmith05
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Re: What do you recommend for your emergency fund?

Post by jbsmith05 » Wed Jul 13, 2016 2:23 pm

I just wonder if taking on a little risk for additional returns - like a limited term bond fund is worth it. Something that earns a few hundred bucks a year.

jbsmith05
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Re: What do you recommend for your emergency fund?

Post by jbsmith05 » Wed Jul 13, 2016 2:27 pm

QuietProsperity wrote:I don't think there is anything wrong with parking it at Ally bank in a savings account. 1%, very seamless to transfer to other accounts, etc.

Going down the "good investment vehicle" route with emergency savings can get slippery. Some people will keep it in short to inter term muni funds, some will do cds/mmf, some will just keep it in cash at a bank like Ally.

Find what you are comfortable with and leave it alone. The whole point of an emergency fund is so that it can be used rather quickly, not to "make any money". I prefer to keep it in a savings account like Ally, but that is just me.


Yeah that's the balance I'm trying to strike - for all my other investments I'm the most aggressive you can get as I have a very long term horizon...very aggressive as in a 97% stock to 3% bond ratio. Excluding my emergency fund.

Just looking for options to squeak out a few extra bucks from my emergency fund - make it work for me rather than doing nothing.

jjface
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Re: What do you recommend for your emergency fund?

Post by jjface » Wed Jul 13, 2016 2:30 pm

For a bit of risk you could just put say 10% in equities rather than going for a bond fund and the rest in a 1% bank account.

However you are already very aggressive elsewhere so just keep it liquid and safe.

jbsmith05
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Re: What do you recommend for your emergency fund?

Post by jbsmith05 » Wed Jul 13, 2016 2:35 pm

That's looking like what I'll do - move it to a 1% savings account and let it sit.

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Toons
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Re: What do you recommend for your emergency fund?

Post by Toons » Wed Jul 13, 2016 2:40 pm

Online Savings Account.
:wink:
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Rainmaker41
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Re: What do you recommend for your emergency fund?

Post by Rainmaker41 » Wed Jul 13, 2016 2:58 pm

I second Online Savings such as Ally. Best FDIC/NCUA insured interest and simple to move money in and out. Many think an emergency fund is is more of an insurance policy as it is an investment.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

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Doc
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Re: What do you recommend for your emergency fund?

Post by Doc » Wed Jul 13, 2016 2:59 pm

jbsmith05 wrote:Right now my 6 - 12 month expense emergency fund is in a generic savings account - making nearly no money...and zero risk.


What's an emergency? Or do you want a contingency fund?

From a Web source:

A contingency is a future event that cannot be predicted precisely; that is, something that is unexpected.

An emergency is also an unexpected event, but it is serious and usually requires immediate response.

I like to think of a contingency as money that is going to be spent but we don't know exactly when or what for. This could be a car transmission, you are a construction worker and get laid off, a water heater or bail for my #2 grandson.

An emergency is more serious and may never happen: your house burns down, you are a tenured professor and get laid off, the charges on #2 are multiple homicide.

We often try to insure against an emergency or at least have some kind of plan to handle it. On the other hand we often set money aside for a contingency.

With those definitions you shouldn't have an emergency fund at all. The emergency may never happen at all but it will be bigger than any funds you have in your cookie jar by definition. If the house burns down and you let your fire insurance lapse you may plan to sell stocks or move in with your mother in law.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

BanditKing
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Re: What do you recommend for your emergency fund?

Post by BanditKing » Wed Jul 13, 2016 10:24 pm

I keep $10,000 at Ally in their HYS (I also use Ally for my checking account, escrow/tax savings account, and a large-purchase fund in a savings account I use for travel and planned large expenses). I keep the remainder of my "liquid" emergency fund at Vanguard in my taxable account, 100% into VWIUX. I re-invest the dividends.

I also have about $15,000 in Series I bonds at Treasury Direct. I consider this my "3rd tier" of my emergency fund should I ever need it.

tschanks1
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Re: What do you recommend for your emergency fund?

Post by tschanks1 » Mon Jul 18, 2016 8:28 am

I'm self employed, so I think I might possibly have more "baskets" than if I still worked for the man, but I keep about 15k at Ally, and --I know this is a non starter for some on the forum, but-- I keep some in the Safety Net fund in Betterment. I actually make a little bit of money on it, they do the tax loss harvesting, it's super simple and I really like working with them. I've seen other threads here about if it's a good service or not, and I guess ultimately it comes down to if it's a good service for you personally, when all is said and done.

But at least for me, I like the idea of it being in a 40/60 tax loss harvested account that's easy to cash out should my Ally account for some reason have to be fully tapped. I think of Ally as my true 911 fund, and then the Betterment account as the next tier.

Several years ago I had about 70k in sudden medical bills and had put more into retirement than liquid, was self employed with very little income and no sick leave, and ended up tapping the retirement accounts to pay it off. Multiple opinions aside, it was a good decision for me, but I learned a good lesson, at least for myself, in terms of wanting to keep more liquid, but also not have it there languishing away at just 1%.

I don't know if that helps or not, but I like Ally because it's safe, and Betterment because it's safe enough for me to still sleep at night and still make some money on the cash. Let us know what you decide, will you? I think about this often as well, and love hearing how others approach it.

Thanks

inbox788
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Re: What do you recommend for your emergency fund?

Post by inbox788 » Mon Jul 18, 2016 8:55 am

BanditKing wrote:I keep $10,000 at Ally in their HYS (I also use Ally for my checking account, escrow/tax savings account, and a large-purchase fund in a savings account I use for travel and planned large expenses). I keep the remainder of my "liquid" emergency fund at Vanguard in my taxable account, 100% into VWIUX. I re-invest the dividends.

I also have about $15,000 in Series I bonds at Treasury Direct. I consider this my "3rd tier" of my emergency fund should I ever need it.


The short term tax exempt municipal fund is going to be part of my IPS too. I might choose my state to avoid state tax as well. I just haven't gotten around to doing it, and the difference between it and a savings account doesn't make it urgent for me.

I was hoping it would avoid having to report it, but looks like it's not going to simplify my tax situation, but at least i don't I'll have to do any math compared to taxable bonds.

https://ttlc.intuit.com/questions/17771 ... n-my-state

If these are correct current rates, it's not going to make me interested in Series I bonds. My main goal is to keep it simple and I don't ever expect to use the fund, so I want to squeeze a little more return without complicating life unnecessarily.

http://www.savingsbonds.com/rates.cfm

TheGipper
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Re: What do you recommend for your emergency fund?

Post by TheGipper » Mon Jul 18, 2016 9:12 am

No right answer here. Assuming one doesn't have enough surplus in a taxable brokerage acct to cover emergencies I like a tiered approach:

I. Checking/Savings to cover monthly bills and cash flow plus small buffer

II. I bonds/Muni bonds/Short term bonds for maybe 3-6 months of expenses

II Non earmarked funds in taxable account, preferably with some recent lots without significant capital gains.

Personally, I have a need for a large EF due to high daycare costs and mortgage, keep 30k in BoA checking, about 70k in VTEB (VG muni ETF) at Merrill Edge (not counted in AA). This combo lets me maintain platinum honors status and bonus credit card cash back of 5.25% gas, 3.5% gas and Costco, 2.625% all else on BoA Visa Travel and Cash Reward cards. Small stash of IBonds can also be redeemed.

For a prolonged emergency, I'll dip into Vanguard taxable account.

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telemark
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Re: What do you recommend for your emergency fund?

Post by telemark » Mon Jul 18, 2016 9:18 am

The rate at your credit union is about as good as you will find anywhere. When you need to withdraw money, just transfer it to your share account; that should be faster than ACH anyway. Check that it's insured by the NCUA. Also, many savings accounts are subject to Reg D limits: no more than six "electronic" transfers per month, so check on that if that matters to you.
Last edited by telemark on Mon Jul 18, 2016 9:19 am, edited 1 time in total.

Chadnudj
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Re: What do you recommend for your emergency fund?

Post by Chadnudj » Mon Jul 18, 2016 9:19 am

jbsmith05 wrote:Right now my 6 - 12 month expense emergency fund is in a generic savings account - making nearly no money...and zero risk.

What do you recommend as a good investment vehicle for an emergency fund that will provide some returns, but of course won't loose money either (well of course any investment can loose money, but in this case you get what I mean - low risk).

At my credit union they have a money market that lists the current interest rate at 1.00% / 1.01% APY with Dividends compounded daily, paid monthly. But there is no check writing or ACH.


Do you really need check writing/ACH with your emergency fund?

I have my emergency fund at CapOne360. It always takes 3-4 days to get money transferred from it to my checking account if I'd need it. I've never found that to be a huge inconvenience; if it was, I'd just have, say, one month in my immediately accessible bank savings account, and then the other 5-11 months of emergency fund at the credit union earning around 1% APY. Assuming you have credit cards with high enough limits, you could always charge most emergencies, and pay it off once the funds transferred in 3-4 days.

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Taylor Larimore
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Is a separate "Emergency Fund" really needed?

Post by Taylor Larimore » Mon Jul 18, 2016 9:36 am

jbsmith05 wrote:Right now my 6 - 12 month expense emergency fund is in a generic savings account - making nearly no money...and zero risk.

What do you recommend as a good investment vehicle for an emergency fund that will provide some returns, but of course won't loose money either (well of course any investment can loose money, but in this case you get what I mean - low risk).

At my credit union they have a money market that lists the current interest rate at 1.00% / 1.01% APY with Dividends compounded daily, paid monthly. But there is no check writing or ACH.

jbsmith05:

Most of us (not all) do not need a separate, low-yielding "emergency fund" that may never be used. If necessary, we can obtain cash from our bank account, credit card, portfolio, bank loan, or family.

Keep investing simple by avoiding unnecessary funds and accounts.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

BanditKing
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Re: What do you recommend for your emergency fund?

Post by BanditKing » Mon Jul 18, 2016 9:43 am

We keep about 25% of our EF at Ally 1% Savings. 50% or so is kept at Vanguard in VWIUX. The remainder is at Treasury Direct in Series I Bonds.

I'd consider Ally and TD to be 100% "Safe" locations for our EF. VWIUX has a risk to NAV, but it's not very high IMHO and the returns are (comparatively) nice and free from federal tax liability.

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cfs
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Re: Is a separate "Emergency Fund" really needed?

Post by cfs » Mon Jul 18, 2016 9:49 am

Concur with our shipmate Taylor

Concur with our shipmate Taylor's "Most of us (not all) do not need a separate, low-yielding "emergency fund". I see the whole SWAN portfolio as my emergency fund. Just my two centimos. Good luck with your investments.

Thanks for reading.
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hikeandbike
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Re: What do you recommend for your emergency fund?

Post by hikeandbike » Mon Jul 18, 2016 9:54 am

Ally savings. 6 months expenses, purely because it reduces some of the stress worrying about money. do I ever use it? hardly. still worth it to me.

Torg Fadum
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Re: What do you recommend for your emergency fund?

Post by Torg Fadum » Mon Jul 18, 2016 10:10 am

Hello jbsmith05,

Congrats on having a substantial emergency fund. In my opinion, having an adequate safe, liquid emergency fund also allows one to be more comfortable with an aggressive long-term portfolio as appropriate.

If you are eligible for a Roth IRA and are not maxing IRA contributions every year (or could reduce them and instead make larger contributions to a 401k), have you considered using a myRA -- my Retirement Account -- Roth IRA for a portion of your emergency fund? Perhaps for the second tier?

You have to keep the myRA Roth IRA balance under $15,000 but it earns the same rate as the TSP G Fund. Like other rates, that rate has been going down but was about 1.75% the last time I checked. And of course it grows tax-free. You can take your contributions out at any time, such as for an emergency or any other reason.

https://myra.gov/

Also, depending on your situation – particularly if you have a good stable-value fund in a 401k – you might also consider “Placing cash needs in a tax-advantaged account” combined with tax-efficient equities in a taxable account as described in the Wiki. If you haven’t done so already, I suggest you check the Wiki entry on Emergency funds and the related links.

Best of luck,
Torg

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Psyayeayeduck
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Re: What do you recommend for your emergency fund?

Post by Psyayeayeduck » Mon Jul 18, 2016 11:51 am

I do a tier system when it comes to my emergency fund as not all emergencies cost the same. For example, let's say that I have a 6-month emergency fund. I would use 2-3 months worth of expenses in a checking account collecting that FANTASTIC 0.1% interest ( :annoyed ) just in case a car repair happens, a particular utility bill suddenly became higher than usual, or give myself some breathing room. Then the remaining emergency fund is placed in the bonds/CDs for more dire emergencies.

jbsmith05
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Re: What do you recommend for your emergency fund?

Post by jbsmith05 » Tue Jul 19, 2016 8:44 am

Thanks for all the replies... a few things to think about in consideration with my situation. Many thanks!

nolapepper
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Re: What do you recommend for your emergency fund?

Post by nolapepper » Tue Jul 19, 2016 9:04 pm

I periodically check the website depositeaccounts.com and bogleheads for high interest rate deals. I just found out our credit union has a 3% APY reward checking for $10k, I think that can be a good emergency fund place. So check your local banks and you may find good deals.

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