Where to put emergency fund money?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
JB2013
Posts: 180
Joined: Mon Sep 12, 2016 1:04 pm

Where to put emergency fund money?

Post by JB2013 »

Hi everyone. I'm wondering if people have ideas or suggestions on whether I should park my emergency fund someplace other than a high yield savings account. I currently max out my 401K, have both our Roth IRAs maxed for the year. I am married with 3 kids (all ages 7 and under). We are 35 years old.

I currently have 21K for emergency fund. I know the high yield savings is the safest bet, but wondering if putting this in a balanced index fund would be worth any consideration. We are hoping to save for a remodel as well.

I do have a brokerage account and contribute to ITOT through fidelity. Any ideas/thoughts would be helpful. Thank you!
RyeBourbon
Posts: 63
Joined: Tue Sep 01, 2020 12:20 pm
Location: NJ/Philly

Re: Where to put emergency fund money?

Post by RyeBourbon »

How will you feel if you have an emergency and have to liquidate it at $18K?
Mike Scott
Posts: 1403
Joined: Fri Jul 19, 2013 2:45 pm

Re: Where to put emergency fund money?

Post by Mike Scott »

If you put "enough" into your brokerage and are willing to sell whether it is up or down when you need the money, you may be able to skip the high yield savings. Or just keep it in the high yield savings. It may not make much money sitting in savings but it will be there when you need it.
Topic Author
JB2013
Posts: 180
Joined: Mon Sep 12, 2016 1:04 pm

Re: Where to put emergency fund money?

Post by JB2013 »

RyeBourbon wrote: Wed Sep 16, 2020 1:41 pm How will you feel if you have an emergency and have to liquidate it at $18K?
I guess I'm not sure what you mean. Do you mean how will I feel if I have to spend 18K of my emergency fund? If that's your question...obvisouly not good, lol
brad.clarkston
Posts: 971
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Where to put emergency fund money?

Post by brad.clarkston »

With a family that big, that young, plus only $21k I would never dream of putting my EF in anything other than a HYSA with a local bank.

Now if you said you had $40k I would say half in a HYSA and half in no penalty CD's
RyeBourbon
Posts: 63
Joined: Tue Sep 01, 2020 12:20 pm
Location: NJ/Philly

Re: Where to put emergency fund money?

Post by RyeBourbon »

JB2013 wrote: Wed Sep 16, 2020 1:46 pm
RyeBourbon wrote: Wed Sep 16, 2020 1:41 pm How will you feel if you have an emergency and have to liquidate it at $18K?
I guess I'm not sure what you mean. Do you mean how will I feel if I have to spend 18K of my emergency fund? If that's your question...obvisouly not good, lol
How would you feel if the 21K you were saving decreased in value to 18K just when you needed it most?
brad.clarkston
Posts: 971
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Where to put emergency fund money?

Post by brad.clarkston »

JB2013 wrote: Wed Sep 16, 2020 1:46 pm
RyeBourbon wrote: Wed Sep 16, 2020 1:41 pm How will you feel if you have an emergency and have to liquidate it at $18K?
I guess I'm not sure what you mean. Do you mean how will I feel if I have to spend 18K of my emergency fund? If that's your question...obvisouly not good, lol
I think he means the loss of $3k after liquidation.
Texanbybirth
Posts: 1386
Joined: Tue Apr 14, 2015 12:07 pm

Re: Where to put emergency fund money?

Post by Texanbybirth »

Same situation as you, except one more kid due soon. I leave our EF in cash. We've got enough money (and future contributions) working in the market. The EF doesn't need to be part of it, IMO. :beer
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
RyeBourbon
Posts: 63
Joined: Tue Sep 01, 2020 12:20 pm
Location: NJ/Philly

Re: Where to put emergency fund money?

Post by RyeBourbon »

brad.clarkston wrote: Wed Sep 16, 2020 1:48 pm
JB2013 wrote: Wed Sep 16, 2020 1:46 pm
RyeBourbon wrote: Wed Sep 16, 2020 1:41 pm How will you feel if you have an emergency and have to liquidate it at $18K?
I guess I'm not sure what you mean. Do you mean how will I feel if I have to spend 18K of my emergency fund? If that's your question...obvisouly not good, lol
I think he means the loss of $3k after liquidation.
Right. I guess I'm saying that it's up to each of us to decide how much risk to take. Usually we take the least amount of risk with emergency funds and money we will need in the short term.
Mike Scott
Posts: 1403
Joined: Fri Jul 19, 2013 2:45 pm

Re: Where to put emergency fund money?

Post by Mike Scott »

Stock prices don't always go up. You may need the money when stocks are down. You may have enough money that you don't care either way.
Fishing50
Posts: 443
Joined: Tue Sep 27, 2016 1:18 am

Re: Where to put emergency fund money?

Post by Fishing50 »

Saving for a remodel & emergency fund are 2 different goals.

Savings for a defined project should be in a savings account.

EF is for unexpected emergencies. If you have significant taxable investments and job security, you can have your EF invested in ITOT which you can sell if you need to raise cash. You can put Unexpected expenses on a credit card and pay the bill over a couple month if you want to avoid capital gains tax. To help pay the bill, you can take dividends in cash to assist payments or reinvest. Compound growth of $21K over decades can be significant, compared to meager returns of cash. ITOT is more tax efficient than a balanced fund.

At 50yrs old with a military pension in 2yrs and 6 digit taxable assets, we have no EF.
2yrs from military pension. 80 equites / 20 bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash). | Gone Fishing At 52yrs old!
User avatar
anon_investor
Posts: 3462
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where to put emergency fund money?

Post by anon_investor »

Fishing50 wrote: Thu Sep 17, 2020 8:19 pm Saving for a remodel & emergency fund are 2 different goals.

Savings for a defined project should be in a savings account.

EF is for unexpected emergencies. If you have significant taxable investments and job security, you can have your EF invested in ITOT which you can sell if you need to raise cash. You can put Unexpected expenses on a credit card and pay the bill over a couple month if you want to avoid capital gains tax. To help pay the bill, you can take dividends in cash to assist payments or reinvest. Compound growth of $21K over decades can be significant, compared to meager returns of cash. ITOT is more tax efficient than a balanced fund.

At 50yrs old with a military pension in 2yrs and 6 digit taxable assets, we have no EF.
Fishing50, thank you for your service.

The job security is the kicker. This current crisis has proven that many people do not have true job security. The OP should keep the EF in safe assets.

I have my emergency fund in a mix of Series I Savings Bonds ("I Bonds") and no penalty CDs.
Bama12
Posts: 276
Joined: Fri Aug 30, 2019 11:48 pm

Re: Where to put emergency fund money?

Post by Bama12 »

My emergency is with local credit union.
I keep 3 month of income in savings, this money is for job lose only.
I also keep 10k in saving for home repairs if needed.
softwaregeek
Posts: 564
Joined: Wed May 08, 2019 8:59 pm

Re: Where to put emergency fund money?

Post by softwaregeek »

Mike Scott wrote: Wed Sep 16, 2020 1:53 pm Stock prices don't always go up. You may need the money when stocks are down. You may have enough money that you don't care either way.
You WILL need the money when the market is down. That's when you need the emergency fund the most. In a severe downturn, even the most secure jobs can be lost. I am watching my local school district toss out some teachers this year, and you can bet a lot of people who were *sure* that their safe government or academic jobs were forever are going to be out of luck.

I notice others mention the no-penalty CD's but I prefer the high-yield savings account. I use both Ally Savings and JPST (ultra-short bond fund) but there are many good online banks for high yield savings. Others prefer local banks but you will get lower rates. Plus about 3 months in my 'operating' checking account at Schwab with my wife. I do give up some interest on that account versus, for example, Ally, but the higher quality Schwab service is important to me for an account I run my transactions through.
johnny
Posts: 89
Joined: Fri Dec 07, 2018 9:31 am

Re: Where to put emergency fund money?

Post by johnny »

Lots of ideas on this in the wiki: https://www.bogleheads.org/wiki/Emergency_fund

I keep mine split between high yield savings account and no penalty CDs.
brianonearth
Posts: 1
Joined: Fri Sep 18, 2020 9:45 am

Re: Where to put emergency fund money?

Post by brianonearth »

I think of the low interest paid on FDIC guaranteed, readily available savings accounts as an insurance payment. I've always liked to keep 6 months to a year's worth of expenses in some combination of bank savings & CDs, plus, to some extent, money market accounts. (Although the latter don't seem to be as reliable or lucrative as they once were.) The income or potential asset appreciation I forego is just a cost of financial security.

Of course, feelings about insurance reflect your personality and risk assessments. I've always wanted more financial security. Your desires and situation undoubtedly vary.
User avatar
familythriftmd
Posts: 148
Joined: Fri Sep 18, 2020 10:15 am
Location: Wisconsin

Re: Where to put emergency fund money?

Post by familythriftmd »

I'm wondering if it just makes sense to keep it in whatever bank tends to have the most user-friendly apps and websites for you. If you do index fund investing for growth, I don't know if relatively-small interest rates on a low five-figure sum would even make much of a difference.
Thrift stores, outlets and market corrections have this in common: you're buying on sale.
User avatar
gr7070
Posts: 1461
Joined: Fri Oct 28, 2011 10:39 am

Re: Where to put emergency fund money?

Post by gr7070 »

I keep three months in HYS and three months in taxable mutual funds.

There is no need to have all your EF in cash.
User avatar
abuss368
Posts: 21540
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Where to put emergency fund money?

Post by abuss368 »

JB2013 wrote: Wed Sep 16, 2020 1:37 pm Hi everyone. I'm wondering if people have ideas or suggestions on whether I should park my emergency fund someplace other than a high yield savings account. I currently max out my 401K, have both our Roth IRAs maxed for the year. I am married with 3 kids (all ages 7 and under). We are 35 years old.

I currently have 21K for emergency fund. I know the high yield savings is the safest bet, but wondering if putting this in a balanced index fund would be worth any consideration. We are hoping to save for a remodel as well.

I do have a brokerage account and contribute to ITOT through fidelity. Any ideas/thoughts would be helpful. Thank you!
I simply use a Vanguard Federal Money Market fund. For good reason the old saying of “cash is king” is very true.

I look at cash as principal and sleep well at night first and return as second.

I really don’t bother to move around to make a few bucks more in interest.
John C. Bogle: “Simplicity is the master key to financial success."
hudson
Posts: 3237
Joined: Fri Apr 06, 2007 9:15 am

Re: Where to put emergency fund money?

Post by hudson »

JB2013 wrote: Wed Sep 16, 2020 1:37 pm Hi everyone. I'm wondering if people have ideas or suggestions on whether I should park my emergency fund someplace other than a high yield savings account. I currently max out my 401K, have both our Roth IRAs maxed for the year. I am married with 3 kids (all ages 7 and under). We are 35 years old.

I currently have 21K for emergency fund. I know the high yield savings is the safest bet, but wondering if putting this in a balanced index fund would be worth any consideration. We are hoping to save for a remodel as well.

I do have a brokerage account and contribute to ITOT through fidelity. Any ideas/thoughts would be helpful. Thank you!
A high quality/low expense bond fund would work....something like total bond, GNMA, or intermediate muni. If these funds dropped in value, I doubt if it would be catastrophic.
You already know the safest choice.
lostdog
Posts: 3171
Joined: Thu Feb 04, 2016 2:15 pm

Re: Where to put emergency fund money?

Post by lostdog »

BSV ETF

Vanguard Short-Term Bond ETF

https://investor.vanguard.com/etf/profile/BSV
Post Reply