FBG Investors, emergency savings, where? (1 Viewer)

[DallasDMac]

Common advice is to keep six months salary in your emergency savings. But obviously, leaving that money sitting in a savings account is terribly wasteful. Interest is nearly 0%. Even the bank I use only has a .4% interest rate on a Money Market account. They do have a 5 yr CD that earns 1.97%, which is pretty good as far as current CD rates go. I am planning to move probably two thirds of the money to those, knowing that the only "penalty" if I need it is I will lose 300 days of interest. Losing that interest really is no worse than what it earns sitting in savings anyways. And as long as I split it up in to several smaller CD sums, I can really limit any penalty ramifications I'd have to take.

But I'm interested in hearing what vehicle others may use (other than wheat pennies)? Obviously, anything I would use would have to be ZERO risk. It is a savings account, not an investment. So what do you all use, if anything, as your vehicle of choice for your emergency savings?

 

[elbowrm]

I use a home equity line to serve that purpose - the presumption is that Imwould be able to either liquidate long term investments to cover, if necessary, or find another job within a relatively reasonable amount of time.  There aren't that many scenarios that I am solving for, however, with both supplemental disability insurance and a reasonable monthly mortgage paymeant.

 

[bagger]

I use a home equity line to serve that purpose - the presumption is that Imwould be able to either liquidate long term investments to cover, if necessary, or find another job within a relatively reasonable amount of time.  There aren't that many scenarios that I am solving for, however, with both supplemental disability insurance and a reasonable monthly mortgage paymeant.

problem with that is if the bank cuts off the heloc like many did in 2009.

i have mine in savings fdic insured.  emergency savings is defensive in nature, not to maximize yield.

 

[IvanKaramazov]

i have mine in savings fdic insured.  emergency savings is defensive in nature, not to maximize yield.

Same here.  Our emergency account isn't about getting a return; the trivial interest we get is fine.  

 

[gianmarco]

There are high yield savings accounts. I have mine in an AMEX that is currently at 0.9% (it was 1% when I opened it years ago). 

I've seen some as high as 1.3% but they are not as established as some other major institutions so just a matter of your risk tolerance. 

Other than maintaining a decent minimum balance (typically $10k IIRC) and allowing limited transactions per month (6, I think) they are easy to get into and use.

ETA--Check out Synchrony. Low balance, high rate, no frills.

 

[Steve Tasker]

I get 1% in my savings account at Ally.  I've always been very happy with their customer service over the years too, 24/7 online chat support.

 

[Nugget]

I'm a big fan of Ford Interest Advantage.  Free checks, $1000 minimum balance, rates around 1%.  

This is not FDIC insured - you are basically buying unsecured Ford Credit debt.

 

[gianmarco]

I'm a big fan of Ford Interest Advantage.  Free checks, $1000 minimum balance, rates around 1%.  

This is not FDIC insured - you are basically buying unsecured Ford Credit debt.

The AMEX High Yield is FDIC insured.  

 

[moleculo]

I've been triclking my emergency fund into mine and my wife's Roth IRA, where a good chunk is in bonds and the like.  If I ever need it, no penalty on withdraws, but if I never need it itcat least accrues something in a tax-free environment.

 

[bagger]

I'm a big fan of Ford Interest Advantage.  Free checks, $1000 minimum balance, rates around 1%.  

This is not FDIC insured - you are basically buying unsecured Ford Credit debt.

1% is a pretty poor risk adjusted return for that.

 

[matuski]

I'm a big fan of Ford Interest Advantage.  Free checks, $1000 minimum balance, rates around 1%.  

This is not FDIC insured - you are basically buying unsecured Ford Credit debt.

Why take the same return with added risk?

eta - late to the party

 

[PinkydaPimp]

ally or capitol one.  I think my capitol one savings gives me 1.1%.  Keep that emergency fund liquid.  I-bonds might also be a decent option.

 

[swirvenirvin]

discoverbank i get .09%, can easily transfer money in and out to checking/savings/direct deposit

 

[mquinnjr]

Online savings at an FDIC insured house is the right play here. Has to be liquid, get some small amounts of interest, and shielded from market risk. Online savings at established players checks all of these boxes. Anything else is unnecessary risk on assets that shouldn't be at all subject to risk.

 

[DallasDMac]

I've looked at many of the online banks. Admittedly, the allure of the CD option for me is that it is at my local bank. For whatever reason, online-only banks make my spouse a bit leery. Otherwise, the money would have likely been with Ally or Barclays a year or two ago in their 5 yr CDs as they have even smaller penalties for early withdrawal (6 months interest at the time).

Question for many, why not the CD option? No risk. Federally insured. Double the interest rate. Is there a downside I am missing?

Moleculo, IRAs are already maxed, so not really an option.

 

[eoMMan]

You shouldn't be too concerned with the rare of return of your emergency fund. What's most important is acessibilty. Think about it. Let's say you have 50k there in a money market account and you are getting 0.25% now versus a possible 2% in a CD where you are locked up.  You're talking about $125 in interest vs. $1000. That's  $875 extra BEFORE the penalty if you need it (water heater break, car repair, job loss, etc etc).

It's just not worth messing around with, imo. 

 

[mquinnjr]

I've looked at many of the online banks. Admittedly, the allure of the CD option for me is that it is at my local bank. For whatever reason, online-only banks make my spouse a bit leery. Otherwise, the money would have likely been with Ally or Barclays a year or two ago in their 5 yr CDs as they have even smaller penalties for early withdrawal (6 months interest at the time).

Question for many, why not the CD option? No risk. Federally insured. Double the interest rate. Is there a downside I am missing?

Moleculo, IRAs are already maxed, so not really an option.

Ally, Barclays, etc. are very reputable banks. I use Capital One personally, and there's plenty of other options out there that are name brand and secure for this purpose. What's to be leery about here? FDIC insured is FDIC insured, your money is safe. Funds can be deposited and withdrawn at will and without penalty, unlike CD's. Plus, online has no overhead like brick and mortar banks so while not life changing, the rates tend to be better vs a brick and mortar bank savings account. Nothing to dislike or be leery about here for placement of your emergency funds, but that's just my opinion.

 

[eoMMan]

Also, 6 months salary could be excessive.  Most "experts" reference expenses and not salary. It makes sense. If you lost your job, your lifestyle should cut back until you find another job.

The total months depend on how stable your income is and your general comfort level.

 

[Juxtatarot]

I've looked at many of the online banks. Admittedly, the allure of the CD option for me is that it is at my local bank. For whatever reason, online-only banks make my spouse a bit leery. Otherwise, the money would have likely been with Ally or Barclays a year or two ago in their 5 yr CDs as they have even smaller penalties for early withdrawal (6 months interest at the time).

Question for many, why not the CD option? No risk. Federally insured. Double the interest rate. Is there a downside I am missing?

Moleculo, IRAs are already maxed, so not really an option.

The problem with a 5-year CD is you're stuck with that historical low rate when rates go up. Plus, as you mentioned, the early withdrawal penalty.

I use both on-line accounts plus I bonds. One advantage of the I bonds is the interest is tax deferred.  

 

[Steve Tasker]

I've looked at many of the online banks. Admittedly, the allure of the CD option for me is that it is at my local bank. For whatever reason, online-only banks make my spouse a bit leery. Otherwise, the money would have likely been with Ally or Barclays a year or two ago in their 5 yr CDs as they have even smaller penalties for early withdrawal (6 months interest at the time).

Question for many, why not the CD option? No risk. Federally insured. Double the interest rate. Is there a downside I am missing?

Moleculo, IRAs are already maxed, so not really an option.

I have had money in CD ladders in the past, but prefer to have a little more liquidity/no penalty worries.  If you're able to lock in the money for 5 years, I question whether it's really an emergency fund......and if you're willing to plunk it down for 5 years, you can do better in the stock market.

 

[moleculo]

Moleculo, IRAs are already maxed, so not really an option.

Just tossing this out for consideration: your Roth IRA likely is diversified, mix of stocks and bonds.  You could set the bond portion to be equivalent to 6 months salary, call that your emergency fund, and invest whatever else you have as you see fit.  If things go poorly, you can withdraw anything you put into  the Roth penalty free, at which case you would probably want to rebalance.

Downside is your Roth is likely to become more conservative than one might like, but the upside is your whole portfolio would be larger.

Just spitballin here.

 

[[scooter]]

I have a bunch of money in a Reward Checking Account that pays 3% interest (as long as I use my debit card 12x per month and have at least one direct deposit going into that account).

I also have some money in CDs that pay 2%. The penalty for early withdrawal is only 5 months of interest, which would essentially knock it down to 1.5-1.75%, which is still better than I'd get from other banks.

 

[pecorino]

I have a bunch of money in a Reward Checking Account that pays 3% interest (as long as I use my debit card 12x per month and have at least one direct deposit going into that account).

I also have some money in CDs that pay 2%. The penalty for early withdrawal is only 5 months of interest, which would essentially knock it down to 1.5-1.75%, which is still better than I'd get from other banks.

3% checking sounds too good to be true, even with the debit purchase requirement. Where did you get 3%?

 

[FUBAR]

Just plain old savings/checking account here.  But we only have 3 months spending in the account.  If you need 6, cool but imo it should be 6 months spending not salary. 

 

[matuski]

I have a bunch of money in a Reward Checking Account that pays 3% interest (as long as I use my debit card 12x per month and have at least one direct deposit going into that account).

I also have some money in CDs that pay 2%. The penalty for early withdrawal is only 5 months of interest, which would essentially knock it down to 1.5-1.75%, which is still better than I'd get from other banks.

Why wouldn't you share where you are getting these from?

 

[[scooter]]

3% checking sounds too good to be true, even with the debit purchase requirement. Where did you get 3%?

There are many banks and credit unions that offer Reward Checking Accounts, although most of them are state-specific. Lake Michigan Credit Union offers accounts nationwide, though.

 

[wilked]

Greek bonds are yielding 20%

i have a GB who's family is Greek, he assures me they are low risk 

 

[NutterButter]

I put mine in stocks.   I like to be aggressive.   I have probably 6 months of salary in there, but I really can't see ever needing close to that much.   I can't imagine a scenario with that's the case.  

 

[wilked]

I put mine in stocks.   I like to be aggressive.   I have probably 6 months of salary in there, but I really can't see ever needing close to that much.   I can't imagine a scenario with that's the case.  

You have six months salary worth of stocks? I think I know who's buying during next cornhole...

 

[pecorino]

There are many banks and credit unions that offer Reward Checking Accounts, although most of them are state-specific. Lake Michigan Credit Union offers accounts nationwide, though.

Wow, sweet. Thanks.

 

[Dentist]

I use the amex bank for mine as well.

I've accepted that you are losing money on that in the short and long term.

Really it's a good problem to have as most people have to take care of emergencies by use of credit cards, payday loans, 401k loans, borrowing from family, etc.

I figure if savings rates suck at least inflation is usually under control, and it means my borrowing rates are pretty good. 

Congrats on having savings, it's a real top 10 percent type of problem

 

[NutterButter]

You have six months salary worth of stocks? I think I know who's buying during next cornhole...

Does a cornhole constitute an emergency?  

 

[wilked]

It has before, and it will again

#imgonnakilljoet

 

[Kal El]

I've understood that an emergency fund is there for an emergency, not necessarily to make more money. To that end, it would have to be easily accessible as well, so IMO, it makes sense to keep it in a savings account.

 

[FUBAR]

Greek bonds are yielding 20%

i have a GB who's family is Greek, he assures me they are low risk 

Tell Jimmy we say hi. 

 

[DallasDMac]

Well crap, based on this thread I went out and re-read a bit and, sure enough, it is six month's EXPENSES, not salary. Obviously I need to move some out of savings and in to some sort of investment. I'll leave the six month's expenses in a higher yield savings account of some kind based on inputs here. Thanks to all.

 

[cstu]

All my money is in preferred shares paying ~7%. If I need cash it isn't difficult to sell them and get the money in a couple days.

 

[Van Dyman]

I have had money in CD ladders in the past, but prefer to have a little more liquidity/no penalty worries.  If you're able to lock in the money for 5 years, I question whether it's really an emergency fund......and if you're willing to plunk it down for 5 years, you can do better in the stock market.

Are you saying you expect emergencies to pop up at least every 5 years?  I've had an emergency fund forever, but never had an emergency.  Maybe I'm using it wrong.

 

[Dentist]

Are you saying you expect emergencies to pop up at least every 5 years?  I've had an emergency fund forever, but never had an emergency.  Maybe I'm using it wrong.

That's the way it usually goes, those most prepared for an 'emergency' are probably least likely to have one due to well maintained equipment/homes/cars, better health, etc.   

 

[Dentist]

All my money is in preferred shares paying ~7%. If I need cash it isn't difficult to sell them and get the money in a couple days.

This is a pretty darn good strategy and I have most of my deep emergency fund in that. (I believe in a 12 month fund, 6 months cash, 6 months invested.)

But don't be fooled those are safe, those companies can fail, and those do have interest rate risk.

 

[cstu]

This is a pretty darn good strategy and I have most of my deep emergency fund in that. (I believe in a 12 month fund, 6 months cash, 6 months invested.)

But don't be fooled those are safe, those companies can fail, and those do have interest rate risk.

Bank of America is too big to fail. 

 

[Van Dyman]

I need to set up an IRA quickly to deduct from 2015 taxable income.  Where to start?

 

[Dentist]

I need to set up an IRA quickly to deduct from 2015 taxable income.  Where to start?

Try the personal finance forum.

Td ameritrade and fidelity are usually winners for individual investors though

 

[Tiger Fan]

pulled this from my post in the retirement thread:

Here's what I posted a few months back in the Retirement Thread - there's some good discussion around emergency funds starting around this page:https://forums.footballguys.com/forum/index.php?/topic/681010-pbs-frontline-the-retirement-gamble-sorta-must-see/page-36

Quote
IMO, the "Emergency Fund" needs to be risked based. Here's roughly how I do it:

Look at monthly expenses and strip out everything that isn't absolutely necessary. I look at this as if the absolute worst case scenario happened (wife and I both simultaneously lose our jobs). This is what we'd need to live on for 6 months. I make sure I have this on hand, accessible to me right away.

Now having said this, I'd like to bring up two points:

This is where the envelope method of saving is so important. Depending on what your monthly expenses are, and if you build up your envelopes appropriately (i.e. have the complete balance in the envelope prior to spending) - you can theoretically have enough money in your "discretionary spending" envelopes to cover your necessities in the worst case scenario. - this is what I do.

Every situation is different. My wife and I are in completely different industries with completely different skill sets; so I think the chance that we'd both lose our jobs and be w/o employment for 6 months is extremely slim. Also, given our education, skill set, networks, etc - I'm confident we would have some way to create income in the meantime until permanent employment was available.

Also, you need to understand your medical benefits, disability coverage, etc. This all factors in to how much "emergency savings" you need.

 

[Steve Tasker]

Are you saying you expect emergencies to pop up at least every 5 years?  I've had an emergency fund forever, but never had an emergency.  Maybe I'm using it wrong.

I was saying that he was going to put the money in a 5-year CD.  I'm saying that if you've got money that you are pretty certain you won't need to touch for 5 years (hence why you'd put it in a 5-year CD), it's not really emergency savings and you're better off with a different investment.

 

[Random]

Are you saying you expect emergencies to pop up at least every 5 years?  I've had an emergency fund forever, but never had an emergency.  Maybe I'm using it wrong.

Yea, this.  What exactly constitutes an emergency (aside from loss of job) that requires 6 months of expenses?  Someone mentioned water heater and car repair.  Those things dont come near justifying 6 months expenses in a checking account.  

That said, we keep about 3-6 months expenses in a savings account but this is also used for new car savings and vacations.  Also have a few HELOCs with available credit to cover an extended job loss, and if necessary could pull money from IRAs.

 

[eoMMan]

Yea, this.  What exactly constitutes an emergency (aside from loss of job) that requires 6 months of expenses?  Someone mentioned water heater and car repair.  Those things dont come near justifying 6 months expenses in a checking account.  

That said, we keep about 3-6 months expenses in a savings account but this is also used for new car savings and vacations.  Also have a few HELOCs with available credit to cover an extended job loss, and if necessary could pull money from IRAs.

Medical could be a significant expense....especially with more and more plans having higher deductibles.

And maybe an unexpected funeral?  That could be 10k easy.

 

[wilked]

High dollar 'emergencies' we have had in last couple years:

-Require new car unexpectedly (spend $8K cash on a new ride)
-Wife got audited, we had a ~ $4-5K bill from IRS

Things I think might happen:
-Boiler dies in mid-winter
-I lose my job
-Wife loses her job
-One of kids gets so sick / hurt that one of needs to quit work
-We crash one of the cars with no collision insurance

And so on.  Where you can get stuck is if two of the above happen at once, which is not that farfetched.  

For whatever it's worth, though, we don't carry 6 months expenses cash.  We carry more like 3-4, which is plenty.  Some of it depends on level of income and secondary savings though.  If you are making $1000 / week, you might want to keep at least $6000 e-fund as the items I listed above can cost that much.  If you are making $4000 / week, you likely can reduce your multiple, assuming you can tap other funds in the event of an extended leave of absence from work.

 

[NutterButter]

Losing the job is a big one, but I would still take into account unemployment insurance which in NJ is $600 per week so that alone offsets most of my mandatory expenses.  Car loss is pretty big, but worst case could always be financed.   

 

[Chadstroma]

Common advice is to keep six months salary in your emergency savings. But obviously, leaving that money sitting in a savings account is terribly wasteful. Interest is nearly 0%. Even the bank I use only has a .4% interest rate on a Money Market account. They do have a 5 yr CD that earns 1.97%, which is pretty good as far as current CD rates go. I am planning to move probably two thirds of the money to those, knowing that the only "penalty" if I need it is I will lose 300 days of interest. Losing that interest really is no worse than what it earns sitting in savings anyways. And as long as I split it up in to several smaller CD sums, I can really limit any penalty ramifications I'd have to take.

But I'm interested in hearing what vehicle others may use (other than wheat pennies)? Obviously, anything I would use would have to be ZERO risk. It is a savings account, not an investment. So what do you all use, if anything, as your vehicle of choice for your emergency savings?

A good way to approach this if you want is to ladder your CD's. So, let's say you have $10K you want to have 'intermediate' access to- so not exactly cash on demand but within a short period of time. You then break it up into $1K or $2K or $2500 etc and then open several CD's, say $2,500 at  6 month, 12 month, 18 month, 24 month terms.  Once the shortest term CD matures, you renew it for the longest term. So, in the example given- when the 6 month CD matures, you renew it for a 24 month CD. Eventually, all the CD's will be 24 month terms so you are getting the benefit of the longer term CD's but then have a chunk of you cash available every 6 months. How you do this all depends on your specifics and what you want to do- how much you want available over what length of time etc. Then you don't have to put all your short term cash in a liquid savings. Coupling this up with something like a HELOC to cover for any immediate short term needs can maximize the cash.