Where to hold cash/emergency fund money?

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MickMal
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Where to hold cash/emergency fund money?

Post by MickMal » Sat Dec 07, 2019 12:29 pm

I apologize as this is probably a repetitive question but I’m planning for the new year and wondering if there is a better option on where to hold cash? Currently I have a CIT Bank savings account earning 1.80% and I’m planning to build up (automatically contributing funds every month) my cash reserve in 2020 to have six to eight months living expenses liquid.

I use Vanguard for my brokerage account and considering their money market funds (ie Prime Money Market).

Any advice would be appreciated.

HEDGEFUNDIE
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Re: Where to hold cash/emergency fund money?

Post by HEDGEFUNDIE » Sat Dec 07, 2019 12:31 pm

1.8% is pretty good.

I use Orion Credit Union which pays 2.2 to 3.0% depending on the balance, but it does have some hoops to jump.

stan1
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Re: Where to hold cash/emergency fund money?

Post by stan1 » Sat Dec 07, 2019 12:47 pm

There a number of approaches, some depend on how likely you are to need the cash.

For example you might consider a one year CD. It might have a penalty if you withdraw early. Maybe you will, maybe you won't do that.

nguy44
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Re: Where to hold cash/emergency fund money?

Post by nguy44 » Sat Dec 07, 2019 10:19 pm

Vanguard Prime Money Market's current yield is less than your CIT Bank rate. I would just keep building it up where it is.

retiredflyboy
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Re: Where to hold cash/emergency fund money?

Post by retiredflyboy » Sat Dec 07, 2019 10:53 pm

I like what you are doing
Facts are stubborn things. Everything works until it doesn’t.

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willthrill81
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Re: Where to hold cash/emergency fund money?

Post by willthrill81 » Sat Dec 07, 2019 10:57 pm

A high yield savings account earning 1.8% these days is very solid. There's no need to do more than that, although once you get your fund built up, you can start playing the 'savings account bonus game' (i.e. opening up savings accounts with institutions that offer a bonus for doing so) to increase the effective interest earned.
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shess
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Re: Where to hold cash/emergency fund money?

Post by shess » Sat Dec 07, 2019 11:13 pm

MickMal wrote:
Sat Dec 07, 2019 12:29 pm
I apologize as this is probably a repetitive question but I’m planning for the new year and wondering if there is a better option on where to hold cash? Currently I have a CIT Bank savings account earning 1.80% and I’m planning to build up (automatically contributing funds every month) my cash reserve in 2020 to have six to eight months living expenses liquid.

I use Vanguard for my brokerage account and considering their money market funds (ie Prime Money Market).

Any advice would be appreciated.
My general approach is to look at someplace like bankrate.com and see what the offerings look like, and then settle for "good enough". For this reason, I have accounts at Ally Bank, their savings rate is "good enough", their no-penalty CD is a nice bump for something slightly more stable than "savings", and they sometimes have decent 12-month CD rates which tempt me to put some longer-term money there. I also have Alliant CU because I like having free ATM access. I've stuck with Ally because they don't seem to offer bait-and-switch marketing rates, like especially good rates on an 18-month CD but then everything sucks when the CD matures.

Money-market funds are USUALLY just fine for this kind of thing, but starting in 2008, there were a few years where they had very nominal yields, while Ally and the like offered better. Ally or CIT offer higher rates because they went into receivership or otherwise had to be bailed out in 2008/2009, and they need to offer better rates to help fund their cash needs (you can usually figure this out from their Wikipedia pages). FDIC insurance means that they should still be safe enough to use.

Also, Discover Bank usually offers reasonable yields, though usually not the best. They're a little different from the case above, their incentive to pull in deposits is that then they can lend it out via their credit card.

Bama12
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Re: Where to hold cash/emergency fund money?

Post by Bama12 » Sat Dec 07, 2019 11:33 pm

I use Vanguard for my brokerage account and money market.

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sperry8
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Re: Where to hold cash/emergency fund money?

Post by sperry8 » Sat Dec 07, 2019 11:42 pm

MickMal wrote:
Sat Dec 07, 2019 12:29 pm
I apologize as this is probably a repetitive question but I’m planning for the new year and wondering if there is a better option on where to hold cash? Currently I have a CIT Bank savings account earning 1.80% and I’m planning to build up (automatically contributing funds every month) my cash reserve in 2020 to have six to eight months living expenses liquid.

I use Vanguard for my brokerage account and considering their money market funds (ie Prime Money Market).

Any advice would be appreciated.
I use both SFGI Direct (2.07% APY) and HSBC Direct (2.05% APY). I think it's wise to follow the top rate leaders (within reason) and keep money there. You can find rate leaders via a quick google search or just follow a blog like depositaccounts. Why give up .25%?
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

Topic Author
MickMal
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Re: Where to hold cash/emergency fund money?

Post by MickMal » Sun Dec 08, 2019 12:25 am

Thank you all for the advice. I am going to check out the HSBC Direct account. As you said, why give up .25% as I already have a decent balance in the CIT Bank and the money will be sitting there just in case I need access to cash.

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Toons
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Re: Where to hold cash/emergency fund money?

Post by Toons » Sun Dec 08, 2019 6:53 am

Stay where you are
1.80
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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sperry8
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Re: Where to hold cash/emergency fund money?

Post by sperry8 » Sun Dec 08, 2019 9:27 am

Toons wrote:
Sun Dec 08, 2019 6:53 am
Stay where you are
1.80
:happy
Why? Why would you give advice to stay and earn less? What is your threshold? What if OP was earning 1.7%? 1.6%? At what point do you feel free money is worthy? Seems like terribly poor advice to me.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

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Re: Where to hold cash/emergency fund money?

Post by radiowave » Sun Dec 08, 2019 9:56 am

What's the opportunity cost for chasing .2 or so percentage? How much extra $ will you earn? I agree with the above 1.8% is competitive savings rate right now. What if you moved your money to another bank/CU and then their rate dropped shortly after you transferred?
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shess
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Re: Where to hold cash/emergency fund money?

Post by shess » Sun Dec 08, 2019 12:36 pm

radiowave wrote:
Sun Dec 08, 2019 9:56 am
What's the opportunity cost for chasing .2 or so percentage? How much extra $ will you earn? I agree with the above 1.8% is competitive savings rate right now. What if you moved your money to another bank/CU and then their rate dropped shortly after you transferred?
I always apply a couple thresholds. If the move isn't going to save me some reasonable absolute value, like $50 or $100 (or however I value my time), what's the point? I'll pick up a nickel when I walk by, but I'm not going to spend my afternoons walking around downtown looking for nickels!

Likewise, I'll look at the other offerings for whether there's general utility. If they have a .2% advantage on 12-month CD rates but their savings rate has a .5% disadvantage, I'll probably just stick with what I have. I'm willing to lose a slight advantage on my blended rate just to feel a bit more comfortable with the relationship.

Basically, I try to evaluate the indirect costs fairly for myself. I've made transfers chasing incremental yield, and regretted it later for indirect reasons, so I try to factor that in up front. Which is a great argument for "Just try it out!", because maybe this poster doesn't mind so much.

chalet
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Re: Where to hold cash/emergency fund money?

Post by chalet » Sun Dec 08, 2019 8:13 pm

I would keep a little of it in a local credit union.

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cowdogman
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Re: Where to hold cash/emergency fund money?

Post by cowdogman » Sun Dec 08, 2019 8:24 pm

Not sure why but I have never seen Sallie Mae mentioned in these discussions (tho I'm guessing someone has). I've had a money market account there for several years. Its rate is consistently at the top of the market--currently 1.85%--and it has check-writing. No fees, no minimums, no deposit/spend requirements, free checks.

OP, but of course I would not move for .05%.
Last edited by cowdogman on Sun Dec 08, 2019 8:28 pm, edited 1 time in total.

Bama12
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Re: Where to hold cash/emergency fund money?

Post by Bama12 » Sun Dec 08, 2019 8:24 pm

chalet wrote:
Sun Dec 08, 2019 8:13 pm
I would keep a little of it in a local credit union.
My Local Credit Union pays 5% but only on the first 2,500 after that it's .5%.
I keep 2,500 in it and the rest with Vanguard.

Money Market
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Re: Where to hold cash/emergency fund money?

Post by Money Market » Sun Dec 08, 2019 10:44 pm

PNC Bank pays 2.05% at the moment. Depositrates.com has the best rates on savings and rewards checking. TAC bank has 4% on the first $50,000, but don't expect that to last long given that Orion had just cut it's rates down to 3%.

Why give up a free 0.25%? Yield is extremely important when it comes to low-yielding risk-free instruments.

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sperry8
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Re: Where to hold cash/emergency fund money?

Post by sperry8 » Mon Dec 09, 2019 6:00 am

radiowave wrote:
Sun Dec 08, 2019 9:56 am
What's the opportunity cost for chasing .2 or so percentage? How much extra $ will you earn? I agree with the above 1.8% is competitive savings rate right now. What if you moved your money to another bank/CU and then their rate dropped shortly after you transferred?
And what if it doesn't drop? What if the bank you're with drops? How long does it take to open the new account? In my experience 15 minutes (max). Imagine you make $100 for those 15 minutes? Seems worthy to me. Perhaps you're in a situation where your time is worth more than $400 p/hr. If so, kudos!

Also note - once opened these accounts cost nothing to keep open. Most, if not all, have no min balance requirements. So what do I do? I keep open 15 accounts and then can easily transfer monies between them in literally 2 minutes. In this way I can rate chase and ensure I'm always getting at or near the highest rate.

I do agree some bank accounts aren't to be trusted (re interest rates). But if you follow along on depositaccounts for a while you start to get a sense of which banks stay competitive and which do not. And then you can open accounts at just the "competitive" ones. It's a worthy endeavor if you have substantive cash funds.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

CountOnIt
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Re: Where to hold cash/emergency fund money?

Post by CountOnIt » Mon Dec 09, 2019 12:20 pm

MickMal wrote:
Sat Dec 07, 2019 12:29 pm
I apologize as this is probably a repetitive question but I’m planning for the new year and wondering if there is a better option on where to hold cash? Currently I have a CIT Bank savings account earning 1.80% and I’m planning to build up (automatically contributing funds every month) my cash reserve in 2020 to have six to eight months living expenses liquid.
I-bonds always warrant some consideration. Some key benefits:
1. Interest is tax deferred until bond is sold (with 6-8 months living expenses, this could end up being a valuable perk).
2. Guaranteed to meet/beat inflation over time.
3. Interest is possibly tax free if used for a dependent's education (You may not end up realizing this perk, but at least there is the possibility of the interest being tax-free).
4. In some aspects, these funds are perhaps safer/more liquid than other places in the financial system during periods of financial collapse. With a bank failure, there could be long delays before your recover FDIC deposits.

Drawbacks:
1. Bond is NOT liquid in first year after purchase (but can easily be converted to cash after that).
2. There may be places that provide a slightly higher yield to park your money at certain points in time.
3. 3-month interest penalty for selling within 5 years.
4. $10K/person/year purchase limit. If want to transition into a substantial position, it can take several years. Since the money is "locked-up" for 12 months, it probably makes sense to stagger into the position anyway.

The fixed rate portion was 0.5% earlier this year. This is the interest paid above and beyond the inflation rate for the life of the bond. Right now, the fixed rate is 0.2% - yielding a composite rate of 2.22%. If you find that compelling, you should consider purchasing before the end of the month so the purchase does not count against your 2020 annual purchase limit. You should keep an eye out for the new fixed rates announced in May and October of next year and consider increasing your position depending on the rates and your financial position.

I-bonds aren't sexy. You may (or may not) be able to more "actively" manage your e-fund by chasing rates and beat their return. They are a simple way to beef up your e-fund (after the 12-month lockup period) in a way that you can set-it and forget-it and know your overall returns will be competitive in the long run.
willthrill81 wrote:
Sat Dec 07, 2019 10:57 pm
once you get your fund built up, you can start playing the 'savings account bonus game' (i.e. opening up savings accounts with institutions that offer a bonus for doing so) to increase the effective interest earned.
As mentioned earlier, chasing sign up bonuses is also a great option, if you are willing to put forth the time/energy.

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Re: Where to hold cash/emergency fund money?

Post by ceodamaki » Mon Dec 09, 2019 12:31 pm

I don't worry much, or spend much time chasing returns on my emergency fund. I think your time would be better spent on other investments. As long as your emergency fund is FDIC insured, easy to access, and getting a reasonable rate of return, move on to other things. 1.80% is reasonable.

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Re: Where to hold cash/emergency fund money?

Post by abuss368 » Mon Dec 09, 2019 9:37 pm

You are fine. I use the Vanguard prime money market fund.
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cowbman
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Re: Where to hold cash/emergency fund money?

Post by cowbman » Mon Dec 09, 2019 10:10 pm

MickMal wrote:
Sat Dec 07, 2019 12:29 pm
I apologize as this is probably a repetitive question but I’m planning for the new year and wondering if there is a better option on where to hold cash? Currently I have a CIT Bank savings account earning 1.80% and I’m planning to build up (automatically contributing funds every month) my cash reserve in 2020 to have six to eight months living expenses liquid.

I use Vanguard for my brokerage account and considering their money market funds (ie Prime Money Market).

Any advice would be appreciated.
OP, do you have state taxes to worry about? That may be a consideration.

MikeG62
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Re: Where to hold cash/emergency fund money?

Post by MikeG62 » Tue Dec 10, 2019 8:01 am

For something like am emergency fund (which is not likely to be withdrawn from every month) a super short-term bond fund might not be a bad idea. FWIW, I've began using ICSH about 4 months ago (as MMF and online savings account yields were, and continue to be, in decline) for some of our excess cash. Current 30-day SEC yield is 2.06%. Duration is so short that it has been largely unaffected by the movements in interest rates over that time.
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