Right now, the main goal that I’m working on is establishing a $10,000 emergency fund. Just in the past week I’ve experienced some setbacks (more on this next week) but, nevertheless, the issue of piling up cash is at the forefront of my financial mind. The thing is, although I’m cognizant of the amount I want to have saved, I don’t think very often about the vehicle in which I’m stashing my cash.
Since a very popular online bank (which shall remain nameless) that I use for my emergency savings has recently – much to my chagrin – been bought out by another large bank (which will also remain nameless) I’ve been on the look-out for another good bank to move my money to, such as BM Savings. But then I started thinking a little outside the box: what if I just abandoned the idea of using a conventional savings account altogether? I realized that, for a personal finance blogger, I have embarrassingly little knowledge about non-traditional savings vehicles, so I decided to do a little research.
It turns out, there are lots of options out there when it comes to parking your cash in a stable, easily accessible vehicle. For example, money market accounts and certificates of deposit. Both offer a higher interest rate than a traditional savings account, and both will keep my money relatively safe (money market accounts are a bit riskier than CDs, but are still pretty stable). The main problem with money market accounts is that they usually have a pretty high minimum balance requirement – sometimes as high as $10,000. Similarly, CDs are usually purchased in a fixed amount – the interest grows steadily, but you can’t exactly add to a CD once you purchase it. So in terms of flexibility, these accounts aren’t quite as advantageous as a regular savings account.
But what about once I hit my $10,000 mark? Won’t I want that money to be working a little harder than the piddly .80% interest I’m making right now? It might feel good (you get the personal finance warm and fuzzies, don’t you?) to put part or all of that money into one of the best fixed rate bonds online. I’d be getting a stable rate of return and my money would be pretty safe. I know that emergency funds aren’t supposed to be an “investment” exactly, but it just makes me sick to think about how hard I’ve worked to accumulate this cash, only to have it basically collect dust in a regular savings account.
Am I crazy to be thinking about putting my emergency savings in an unconventional savings vehicle? Where do you park your emergency cash?
My emergency fund is parked at the same bank as yours. The low (and lowering) rate is depressing. However, I trust the bank to keep my money safe and that money is there for emergencies more than making money. If I could find a similar product with a much better rate I might move, but I wouldn’t put it somewhere with any risk.
I have $5000 of quickly accessable cash between 2 credit unions. Other than that everything else I have is invested. If I ever needed more than the $5K I could use a CC to pay for the “emergency” and then sell some assets from my taxable account. I personally don’t see the point in having such a large amount of cash doing nothing for me (that’s not even taking into account the fact that inflation is actual killing that money slowly).
I also park my emergency fund at the same bank as yours. You could make CDs more flexible my laddering them – buying a CD in month 1, buying another in month 7, and another in month 13, etc. You can’t add to the original CD, but you’ll always only be 6 months away from having access to cash. I’m annoyed by the low interest rates as well, so I keep my emergency fund at $10,000 at all times and funnel extra cash to my non-retirement investment accounts. It’s a risk I’m willing to take.
I’m in that same bank, and like you was disappointed when suddenly there was a new owner. But for now I’m sticking with that plan. For me though, once my E-fund is where I want, I will put all my money towards retirement in that same account, and then send it to investment accounts quarterly.
I can definitely understand why you want your money working harder for you than it is right now. Most financial professionals will advise you to keep your emergency funds in something very safe – I guess the most important thing is that you want your money to be accessible in the event that an emergency occurs. Accessibility is key. Safety, well, that is up to you. As long as you are not putting it into something extremely risky, you are likely okay to take at least some risk.
Money market accounts are FDIC insured, so there is no risk at all. Money market funds are not FDIC insured, so are more risky than CDs, although are very stable. If you open one, you want to know which you have, MMA or MMF. Typically, banks offer MMAs, mutual fund families offer MMFs.
I’m getting .99% at TIAA Direct, but they are not accepting new customers at this time. I don’t know why.
Ally is currently paying .9% on savings, a bit more on CDs.
One strategy I have used in the past to increase yield is to have twelve 1 yr CDs, one maturing each month, plus my savings. So on the first of the month, I divide my savings balance by 13 and place that amount in a 1 yr CD. On the first of the next month, do the same. Eventually, you have the bulk of your savings in CDs, but still have some in savings and never more than 1 month from a CD maturing.
Nowhere. I don’t have any. The tiny amount I have left is in my checking account and will probably be gone within a few months after I pay my bills.
My emergency fund is half at the same bank as yours and half at HSBC (online). Sadly when I started the HSBC account several years ago I was actually making pretty good money in interest. Now I make $2-$3 a month. But since it’s for emergencies I’m not super worried about “making” money on it, just keeping it safe.
Our emergency fund is sitting in a local credit union earning a cool .80%. I plan on laddering the fund into CDs once we stop doing projects at home.
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