Emergency Fund Question

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Topic Author
smoraffah
Posts: 7
Joined: Mon Sep 07, 2020 11:23 pm

Emergency Fund Question

Post by smoraffah »

Hi everyone,

Looking to establish an emergency fund of $100,000.

$75,000 in cash (Marcus savings account, currently 0.80% APY.
$25,000 in VFISX (Short Term Treasury Fund Investor Shares)

1) What are your thoughts on this ratio?
2) Do you think a percentage of the cash portion should be placed in a CD?

Thanks in advance for your suggestions!
babystep
Posts: 245
Joined: Tue Apr 09, 2019 9:44 am

Re: Emergency Fund Question

Post by babystep »

smoraffah wrote: Tue Sep 08, 2020 10:13 pm Hi everyone,

Looking to establish an emergency fund of $100,000.

$75,000 in cash (Marcus savings account, currently 0.80% APY.
$25,000 in VFISX (Short Term Treasury Fund Investor Shares)

1) What are your thoughts on this ratio?
2) Do you think a percentage of the cash portion should be placed in a CD?

Thanks in advance for your suggestions!
What is the reason that you want to split across the two? What will happen if you just go with Marcus savings account?
brad.clarkston
Posts: 979
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Emergency Fund Question

Post by brad.clarkston »

smoraffah wrote: Tue Sep 08, 2020 10:13 pm Hi everyone,

Looking to establish an emergency fund of $100,000.

$75,000 in cash (Marcus savings account, currently 0.80% APY.
$25,000 in VFISX (Short Term Treasury Fund Investor Shares)

1) What are your thoughts on this ratio?
2) Do you think a percentage of the cash portion should be placed in a CD?

Thanks in advance for your suggestions!
Nothing wrong with that similar to mine but I use CD ladders for my slightly less liquid portion.

As long as that breakdown meets your needs (6 months total living expense) without breaking into the VFISX it's fine.
Lee_WSP
Posts: 3471
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Emergency Fund Question

Post by Lee_WSP »

VFISX has an SEC yield of -0.22% FYI.
000
Posts: 3357
Joined: Thu Jul 23, 2020 12:04 am

Re: Emergency Fund Question

Post by 000 »

I think you may get better replies if tell us a little more about the rest of your portfolio.

To most, $100k is a lot of money and quite large for an emergency fund.

If some of this money will not be needed for a long long time, some longer duration bonds and/or stocks could be considered.

Series I bonds are also an option.
mega317
Posts: 4582
Joined: Tue Apr 19, 2016 10:55 am

Re: Emergency Fund Question

Post by mega317 »

The reality is it doesn’t matter a lick. We’re talking about very small yields and small differences among the options. I would load up I bonds and leave the rest in savings. You can also get some pretty good bonuses with that amount if you want to move it around.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
lostdog
Posts: 3371
Joined: Thu Feb 04, 2016 2:15 pm

Re: Emergency Fund Question

Post by lostdog »

I was over thinking this for awhile and constantly trying to optimize the emergency fund. Constantly tinkering with it so I gave up. I just went with Vanguard short term bond index. Enough is enough. It seems the older I get the more I strive for simple.

I used one of the conservative life strategy funds but I didn't like the volatility for my short and medium term money.
MikeG62
Posts: 3272
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Emergency Fund Question

Post by MikeG62 »

smoraffah wrote: Tue Sep 08, 2020 10:13 pm Hi everyone,

Looking to establish an emergency fund of $100,000.

$75,000 in cash (Marcus savings account, currently 0.80% APY.
$25,000 in VFISX (Short Term Treasury Fund Investor Shares)

1) What are your thoughts on this ratio?
2) Do you think a percentage of the cash portion should be placed in a CD?

Thanks in advance for your suggestions!
Assuming having $100,000 in an emergency fund makes sense for you, I would either put it all in the Marcus online savings account or split between Marcus and a CD. Problem is finding a CD with a yield spread above the Marcus OLS account large enough to justify the CD lock up period may take some looking. Check Deposit Accounts and look for deals in the geographic area where you live.

Also, if you join AARP (anyone can join regardless of age for $12) you can increase the Marcus yield by 10bps (to 0.90%). The 10bps on $100,000 amounts to $100 per year and it will take around 45 days to cover off the $12 annual membership fee.
Real Knowledge Comes Only From Experience
Topic Author
smoraffah
Posts: 7
Joined: Mon Sep 07, 2020 11:23 pm

Re: Emergency Fund Question

Post by smoraffah »

MikeG62 wrote: Wed Sep 09, 2020 6:55 am Assuming having $100,000 in an emergency fund makes sense for you, I would either put it all in the Marcus online savings account or split between Marcus and a CD. Problem is finding a CD with a yield spread above the Marcus OLS account large enough to justify the CD lock up period may take some looking. Check Deposit Accounts and look for deals in the geographic area where you live.

Also, if you join AARP (anyone can join regardless of age for $12) you can increase the Marcus yield by 10bps (to 0.90%). The 10bps on $100,000 amounts to $100 per year and it will take around 45 days to cover off the $12 annual membership fee.
I noticed the low yield on CD accounts after I posted. They are practically identical to Marcus’ current yield. I do wonder if it’s better to just keep it all in the Marcus account instead of being locked into a CD that won’t have an increased yield for a couple of years. At least the Marcus account has that flexibility to change.

I didn’t know that about AARP. Thanks for sharing!
Topic Author
smoraffah
Posts: 7
Joined: Mon Sep 07, 2020 11:23 pm

Re: Emergency Fund Question

Post by smoraffah »

mega317 wrote: Tue Sep 08, 2020 11:43 pm The reality is it doesn’t matter a lick. We’re talking about very small yields and small differences among the options. I would load up I bonds and leave the rest in savings. You can also get some pretty good bonuses with that amount if you want to move it around.
I’m probably overthinking a lot of things. To be honest, I started reading Bogleheads Guide to Investing a week ago and the forums a couple of days ago. I’m 30 years old and completely new to investing. My entire savings has been my EF because I’ve had zero dollars in the market. That’s all going to change now, but still trying to figure out the basics like how much to allocate to the EF.
MikeG62
Posts: 3272
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Emergency Fund Question

Post by MikeG62 »

smoraffah wrote: Wed Sep 09, 2020 7:42 am
MikeG62 wrote: Wed Sep 09, 2020 6:55 am Assuming having $100,000 in an emergency fund makes sense for you, I would either put it all in the Marcus online savings account or split between Marcus and a CD. Problem is finding a CD with a yield spread above the Marcus OLS account large enough to justify the CD lock up period may take some looking. Check Deposit Accounts and look for deals in the geographic area where you live.

Also, if you join AARP (anyone can join regardless of age for $12) you can increase the Marcus yield by 10bps (to 0.90%). The 10bps on $100,000 amounts to $100 per year and it will take around 45 days to cover off the $12 annual membership fee.
I noticed the low yield on CD accounts after I posted. They are practically identical to Marcus’ current yield. I do wonder if it’s better to just keep it all in the Marcus account instead of being locked into a CD that won’t have an increased yield for a couple of years. At least the Marcus account has that flexibility to change.

I didn’t know that about AARP. Thanks for sharing!
WRT CD yields, it depends on how far you are willing to go out in term/duration. For example, Barksdale Federal Credit Union just reduced their rates last week (so unlikely that another cut is imminent). Even with that reduction, the yield on their plus-point 5-year CD ladder ranges from 1.30% on the 12-month rung to 1.80% on the 60-month rung. You could do $1,000 in each of the 24, 36, 48 and 60 month CD's and put $96,000 in the 12-month CD if you wanted (or whatever combination of the piece parts as you wish as Iong as you put at least $1,000 in each rung of the ladder). Membership may be easier that you think - for example, any immediate family member that is ex-military?

I would not be too worried about having my emergency fund in a traditional CD (or mix of traditional CD's). After all, how many times have you needed to access it? CD's can be broken if you need the money and have no other places to turn. And if the Barksdale CD's are outstanding for more than a year (at current yields) you'd still yield more than you would have in the online savings account or NP CD (even if OLS account rates don't drop for the duration of the CD).
Real Knowledge Comes Only From Experience
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gr7070
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Re: Emergency Fund Question

Post by gr7070 »

smoraffah wrote: Wed Sep 09, 2020 7:47 am how much to allocate to the EF.
3-6 months expenses, max. You especially don't need more if you live in a two-income family. 6 months is still plenty in single income family.

It also doesn't all need to be liquid or ridiculously safe. Especially the bigger it is.

If you actually were to go with 100k, I'd put all but 3 months into a total stock index. The reality being that most of that isn't really an EF.
smoraffah wrote: Wed Sep 09, 2020 7:47 am My entire savings has been my EF because I’ve had zero dollars in the market.
That's your biggest concern!

Personal Finance Basics:
0. Live within your means
1. Emergency fund: 3-6 months recommended, more is unnecessary
2. Pay yourself first. Save as much as you can afford in tax-protected, retirement plans (401k, 457, 403b, Roth IRA). Target 15+% minimum
3. Pay off credit cards every month
4. The loan most worth having is your home mortgage. Consumer debt is often an excuse to overspend
5. Drive an appropriately priced car, the longer you keep it the better
6. Have appropriate insurance; must-haves: health, long-term disability, auto, term life once you have dependents
7. Give some to charity; even if it's a little, including time
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