Where do you keep your emergency fund?

[siriusblack]

I have my emergency fund in VFSTX (Vanguard Short-Term Investment Grade Bond Fund) -- but I was recently wondering whether maybe I'm carrying too much risk for an emergency fund. What do you all think?

[Garfieldthecat]

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

[Phineas J. Whoopee]

It took some time to accumulate enough of them due to the annual purchase limits, but now mine is in Series I Savings Bonds. They are included in my overall portfolio allocation, despite frequent advice here to the contrary. I own the totality of what I own.
PJW

[samsoes]

About 50/50 in my bank's savings account and I-Bonds.

[lostdog]

Vanguard Federal Money Market. Brokerage sweep account.

[Davinci]

Where do you keep your emergency fund?

Currently in Ally savings but I am seriously considering moving part of it to Vanguard PMM to quickly execute RBD in Taxable if the rare opportunity presents itself.

RBD under a rare opportunity and with an objective criteria I think is reasonable.

Livesoft has a great eye to see an RBD so it would be great if he could give us a heads up when there is one. My biggest concern is that I do not know yet when to RBD as a fairly new investor.

P.S I don't time the market but I think RBD is a reasonable strategy.

I know I might get challenged and get different opinions on this, so let's debate and please help me change my reasoning and undestanding if I am wrong.

DaVinci

[stan1]

I have my emergency fund in VFSTX (Vanguard Short-Term Investment Grade Bond Fund) -- but I was recently wondering whether maybe I'm carrying too much risk for an emergency fund. What do you all think?

Risk has two components: likelihood and consequence. How likely are you to need your emergency fund? This might depend on how secure your job is, whether you plan to use this account to buy a new car or for a home down payment, and how much you keep in other cash accounts like a checking account. What is the consequence of selling your bond fund? You have to look at the potential loss in value it might have which requires a guess. Maybe you might lose 10% of value. What is the impact of having your $10K bond fund worth only $9K?

I prefer a tiered approach and use a combination of money market funds, muni bond funds, and CDs as part of my fixed income allocation.

[Afty]

Capital One 360 MM account at 2% interest, FDIC insured.

[Toons]

Cap 360

[Latestarter62]

Cit Bank savings account 2.45%

[Broken Man 1999]

I have my emergency fund in VFSTX (Vanguard Short-Term Investment Grade Bond Fund) -- but I was recently wondering whether maybe I'm carrying too much risk for an emergency fund. What do you all think?

I think you are just fine. You are in a good fund (though I much prefer Vanguard Short-term Treasury Index fund).

Are you concerned with the quality of the bond fund, or are you concerned about the length of time that might be needed to receive the funds from a sale?

Thing is, you can get funds quickly if you need them. That is what you need to handle emergencies.

In our 47 years of marriage, wife and I never had a problem that required immediate access to cash. All through the children's childhood illnesses, auto wrecks, broken/sprained limbs. Never needed it. Never had a car or home repair where cash was demanded.

Our emergency fund was multiple high-limit credit cards, and a HELOC account for a time. If you have a high-limit credit card, you can cover a bill quickly, in many many cases, giving yourself a breathing room to wait for a couple of days for your Vanguard fund sale and transfer of proceeds into your banking account.

An easy solution for having ability for near immediate cash might be purchasing a few I-Bonds. After a holding period of a year you can cash them in with only the loss of some of the interest if you have to redeem prior to five years. At least with I-Bonds, you are getting some benefits when inflation is considered. Treasury Direct redemption time is very fast.

Many people swear by emergency funds, but I prefer to keep my money working all the time. Often emergency funds are placed in low interest instruments, a tradeoff for having the funds available virtually immediately.

Also, some people like the actual segregation of different pots of money. But, money is fungible, and you can mentally isolate the total into as many pots you want to have.

But you should do what makes you comfortable, whatever removes your uneasiness of not being able to respond to an emergency. Whatever lets you sleep comfortably is what you should want, after you have considered your needs, and possible solutions.

Good luck!

Broken Man 1999

[ChinchillaWhiplash]

25% in high yield online savings. 25% intermediate indexed tax free municipal fund in taxable. 50% in high yield indexed muni fund in taxable. Will use in that order. I count the muni funds as part of fixed income, but they are specifically there for an emergency.

[willthrill81]

1/3 in hard cash, 2/3 in Wellesley Income (in a Roth IRA).

[lvrpl]

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

Is the interest in VSUXX subject to federal income tax? I currently have my emergency fund in VMSXX and am wondering if VSUXX might be better (I was in the 32% federal tax bracket this year, for what it's worth).

[MathWizard]

First tier 2-3 month in savings, brick & mortar
Second tier Roth contributions.
Roth contributions total 40 months expenses.
The Roth is currently 60//40 AA.

[scrabbler1]

My first-tier EF is an extra $700 in my local bank's checking account over the minimum amount to avoid monthly account fees. I often tap into this to cover smaller, unforeseen expenses. My second-tier EF is about $40k I keep in an intermediate-term muni bond fund. I rarely have to tap into that blob of money which earns about 2-2.5% annually (and is mostly tax-free), and I have checkwriting privileges on it to give me some added liquidity and speed in accessing it.

[ReformedSpender]

Capital 360 though they are really slacking lately compared to yield of other online banks (IMO)

[AerialWombat]

The funds that I’ve bucketed/mentally accounted as my EF sits in Vanguard Limited Term Tax Exempt.

[siriusblack]

Thanks everyone for the feedback, lots of good ideas here!

I think it's interesting that so many folks have pointed out the mental accounting aspect of this -- i.e. it's really just part of your overall portfolio, all money fungible, etc. I tried pointing that out to my wife once, and she completely agreed in principle, but it still didn't go over very well. We've always kept ours as separate as possible from everything else by keeping it in a unique fund -- and I've realized for us, that's the way it has to be because it helps us BOTH sleep well at night. But it's hard for me to resist the urge to get more than a money market rate of return from it ... it's interesting that so many of you are doing similar. Reading this thread actually emboldens me a little bit to possibly have a small percentage of it in something like Wellesley, while maybe shifting the rest the other way towards Vanguard short-term treasury.

In our 47 years of marriage, wife and I never had a problem that required immediate access to cash. All through the children's childhood illnesses, auto wrecks, broken/sprained limbs. Never needed it. Never had a car or home repair where cash was demanded.

Same here -- we've never actually needed immediate cash, it's always been OK to wait a couple days for the cash to show up in the account from Vanguard. (We've actually only ever used the emergency fund once anyway ... for a HVAC replacement that I was definitely not happy about.)

[am]

1st tier prime mm
2nd tier business federal mm
3rd tier inter muni vanguard fund
4th ibonds
5th tier taxable brokerage
6th tier roths
7th kids 529s
8th retirement accounts
9th tier sell house which is paid off

About 38 yrs of expenses assuming no growth and conservative life. Hope it never gets to the house . After this excersise, maybe I should ditch my life here and run away to some island and work on a blog . Bogleheads would set me straight. How about health care, what about worse than Great Depression returns, what about...

[MathIsMyWayr]

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

Is the interest in VSUXX subject to federal income tax? I currently have my emergency fund in VMSXX and am wondering if VSUXX might be better (I was in the 32% federal tax bracket this year, for what it's worth).

Only muni funds are exempt from federal tax. We are also in a similar situation. Our tax rate is very high for a short while, but is expected to drop down to a moderately high one soon. I am wondering whether there is any way to preserve the purchasing power with a cash-like investment in the mean time. The yields of muni funds are below the inflation rate. Is a I-bond the best option without accrued interest every year?

[Garfieldthecat]

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

Is the interest in VSUXX subject to federal income tax? I currently have my emergency fund in VMSXX and am wondering if VSUXX might be better (I was in the 32% federal tax bracket this year, for what it's worth).

Federal tax yes.
State tax no.

[furwut]

Under my mattress.

[sambb]

in invest it in taxable. one of the worst decisions i have made, is to keep it in money market or CDs , wasted so much in gains. Now it is invested.

[LivinGood]

CIT 2.45%

[dunkmachine]

I somewhat follow a multi-tiered EF from the Wiki: https://www.bogleheads.org/wiki/Emergency_fund

However, I do occasionally think I'm overthinking it to an extent.

Overall, I have 9 months of expenses in and emergency fund, consisting of:

• 1 month in checking at local credit union

• 3 months in HY savings account/11 month no penalty CD with Ally

• 3 months in I-bonds

• 2 months in Vanguard short-term treasury fund (VFISX)

I-bonds are earmarked for college expenses (in 16 years) and I don't expect to have to dip down into the ST treasuries. But this was a compromise with my wife. I was wanting just 6 months of expenses, she wanted 12 months in the EF. We both have Roth IRA's, but we don't consider it part of the EF.

[Clever_Username]

I'm not convinced everyone needs an emergency fund. It's good advice to someone young, early in a career, with his first $5000, asking if that money should be put into a particular stock or even VTSAX. Someone with that level of resources should, of course, keep it in cash. Return is great, but the focus should be the money being there, not the marginal difference in return.

As for me? I have just about one year's expenses in Series I Bonds, some of which have a very low fixed rate. I have about a year's expenses in a bond fund in taxable (CA munis, due to my tax bracket). These are the first two places I would go if I needed money in what most would say constitutes an emergency. These are also part of my asset allocation, in the "conservative assets" category (bonds and similar).

[MnD]

I don't know.
Maybe it's in the very good stable value fund in my TSP (govt 401-K) which is my most safe money.
Or maybe it's in my very liquid taxable brokerage account which is 100% international stock of several varieties.
Or maybe it's in another taxable brokerage account in t-bills which is planned to be pretty much spent down in the next 3-8 months on a camper and a home remodel. Or maybe an inherited IRA that's about 70/30 and has an RMD I haven't taken yet this year. Or maybe in the credit lines of my various reward credit cards - that's where the vast majority of my emergencies are initially funded from.

Bottom line money is fungible, I'm 70/30 for life with all of my accounts being included in my AA, equities global cap with the bulk of my fixed income is yielding ~3% with the rest yielding in-between 2.7% to 4.8%. If and when an emergency arises I'll very likely put it on a rewards credit card that I value use at 3% in travel cash back and pay it off in 28-55 days through cash flow before any interest in incurred. If cash flow isn't sufficient I'll supplement cash flow from one of numerous other accounts where it makes most sense at the time.

[InvisibleAerobar]

Capital 360 though they are really slacking lately compared to yield of other online banks (IMO)

+1

i wonder if it's worthwhile chasing another 0.2-0.4%.

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

does this fund have the potential of loss of principle?

[pasadena]

- 20% in Ally Savings account
- 80% in Vanguard Prime MM

[bengal22]

In Windsor 2, 500 index, Wellington, and Wellesley. This is my taxable account.

[troutbum22]

1/3 in hard cash, 2/3 in Wellesley Income (in a Roth IRA).

New to the forum and joined after reading this. 36 year old newbie and just set up a Vanguard account. Never thought about holding some in anything other than cash. Got a lot to learn, but thanks for the post. Makes sense to me to do something similar to this although I'm sure there are a lot of different options.

[mrspock]

I don't have an emergency fund per se. I have 5 years of expenses in bonds at this point (@ 80/20), and I carry around $30k in cash at all times (in my regular bank account), so anything cataclysmic I can use my bonds, and anything else unexpected I can use cash. My bonds also throw off enough interest at this point that they could pay a very solid chunk of my absolute "must-pay" expenses each month.

[willthrill81]

1/3 in hard cash, 2/3 in Wellesley Income (in a Roth IRA).

New to the forum and joined after reading this. 36 year old newbie and just set up a Vanguard account. Never thought about holding some in anything other than cash. Got a lot to learn, but thanks for the post. Makes sense to me to do something similar to this although I'm sure there are a lot of different options.

Conventional wisdom says that a fund like Wellesley Income is not appropriate for an EF due to its 30% allocation to stocks. However, the worst single year in its history (2008) only saw it drop about 10%. The future could be different, but I'm comfortable with a little volatility in our EF. A 7% drop in our EF isn't likely to make or break us, and I suspect that the long-term returns of Wellesley will be at least keep pace with inflation.

[S&L1940]

It took some time to accumulate enough of them due to the annual purchase limits, but now mine is in Series I Savings Bonds. They are included in my overall portfolio allocation, despite frequent advice here to the contrary. I own the totality of what I own.
PJW

Usually I do not assign any asset as our emergency fund; yet, we are retired and can not replace anything we sell off so we are selective.
I Bonds are our go to 1st step. Several years ago in an up market we needed to meet heavy emergency expenses so we drew from International and Total Stock. Eventually growth more than replaced the stock value. Now if needed, Int Treasury and Total Bond will be our first line emergency defense.

[drk]

I keep my emergency fund in three places:

1. An allocation to Total Bond Market in my 401k
2. A small allocation to short-term Treasurys
3. Credit cards with 0% APRs through most of 2019

I just treat it as part of my portfolio.

[Phineas J. Whoopee]

1/3 in hard cash, 2/3 in Wellesley Income (in a Roth IRA).

New to the forum and joined after reading this. 36 year old newbie and just set up a Vanguard account. Never thought about holding some in anything other than cash. Got a lot to learn, but thanks for the post. Makes sense to me to do something similar to this although I'm sure there are a lot of different options.

Conventional wisdom says that a fund like Wellesley Income is not appropriate for an EF due to its 30% allocation to stocks. However, the worst single year in its history (2008) only saw it drop about 10%. The future could be different, but I'm comfortable with a little volatility in our EF. A 7% drop in our EF isn't likely to make or break us, and I suspect that the long-term returns of Wellesley will be at least keep pace with inflation.

It's perfectly OK, speaking mostly to OP, to keep such funds in a volatile asset, as long as you put in enough that you'll be fine even if it happens to be down when you need to use it. I would have suggested about 10% extra in a 40/60 fund, rounded to the nearest ten percent, even before finding out that was the biggest drop ever.

Keeping a little extra can cover a multitude of sins.

PJW

[Phineas J. Whoopee]

Capital 360 though they are really slacking lately compared to yield of other online banks (IMO)

+1

i wonder if it's worthwhile chasing another 0.2-0.4%.

VSUXX - Vanguard Treasury Money Market Fund. Right now, 2.3% with no state tax. Another option is VMFXX or VMMXX, but you will pay state tax on that (if you live in a state with income tax).

Another option commonly posted here is a high yield savings account (~2%)

does this fund have the potential of loss of principle?

In general, retail money market funds do not. They maintain (an accounting fiction of) a constant $1.00 net asset value.

Vanguard's Treasury Money Market Fund, VUSXX, which I believe you're asking about, is as safe as they come, but it has a $50,000 minimum initial purchase. Their Federal Money Market Fund, VMFXX, is very safe, and it has a minimum of $3,000.

Neither has FDIC insurance, what with not being bank accounts, but the holdings of the first are backed by the full faith and credit of the United States, which is about as good as it gets. There's a credible argument it's better than FDIC insurance.

I would be fully comfortable owning either.

PJW

[Trader Joe]

I have my emergency fund in VFSTX (Vanguard Short-Term Investment Grade Bond Fund) -- but I was recently wondering whether maybe I'm carrying too much risk for an emergency fund. What do you all think?

My emergency fund is in the Vanguard Prime Money Market Fund (VMMXX). Very happy and zero regrets.

[ame]

Ally savings account 2.2%.
Bank bonuses when they are available...next will be the Citi bank $500 (with DD) bonus...https://www.doctorofcredit.com/citi-400 ... -required/

[student]

High Yield Saving Accounts and CDs.

[billyo44]

The best answer I have read on this subject was given by Taylor Larimore:

"I don't think it matters much whether we hold cash or a good-quality, low-cost, intermediate- or short-term bond fund. If very safe cash (including CDs) are chosen, we can increase our allocation to stocks for the same expected risk and return. If more risky bonds are chosen, we must reduce our stock allocation for the same expected risk and return. Either cash or bonds, if properly allocated, should do the job of providing safety (and income) for our portfolios".

My personal take is that it depends on your personal tax situation, risk tolerance/comfort level, and a low expense ratio. I personally use VFSUX but VUSXX makes a lot of sense as it is backed by Uncle Sam.

[Mr.BB]

We get 2% in a basic savings account at the credit union.

[knpstr]

Vanguard Federal Money Market. Brokerage sweep account.

+1
This works great as an emergency fund and it is an easy place to park some cash.

Short term treasury fund would be another good pick for another 0.2%. Warren Buffett suggests keeping one's bond portion in short-term treasuries for his 90/10 recommendation.

[ruhigste]

My money market fund at the Bank still offers close to zero interest. I'm planning to use our existing after-tax Prime Money Market fund as we continue to build our emergency fund. That's our priority now.

[SurfCityBill]

Laddered CD at PenFed paying 2.75%. Planning to build out monthly so I'm never more than 1 month away from a portion. Some savings for less than 30 day emergencies.

[Howie]

Capital One 360 MM account at 2% interest, FDIC insured.

The amount >$10K. The dollars below that threshold receive a lower rate.

[Turbo29]

Capital One 360 MM account at 2% interest, FDIC insured.

The amount >$10K. The dollars below that threshold receive a lower rate.

They pay it on the entire balance so long as you have >=$10000

[Go Blue 99]

Cap One 360.

[Howie]

Capital One 360 MM account at 2% interest, FDIC insured.

The amount >$10K. The dollars below that threshold receive a lower rate.

They pay it on the entire balance so long as you have >=$10000

Thanks for the correction! Seems a decent rate for parking one's EF.