Ask the grumpies: Emergency fund placement

Debbie M. asks:

Where are you keeping your emergency fund these days?

#1:  I’m keeping mine in a savings account for maximum liquidity.  Having just quit my job and moved to a different state, I am living off my savings and my partner’s salary these days, and my savings aren’t so big that I could usefully make a short-term investment.

#2:  Also savings.  We have too much in there right now for no good reason [well, now we’re saving up for a year of leave…].  Term shares (CDs) aren’t paying enough to make it worth my time to move into ladders.  I do have a secondary emergency fund that I keep in taxable index funds on etrade.  (Some day we will move everything to Vanguard, but etrade is currently our legacy investment place.)  And, of course, in a true emergency we could tap our home equity either by taking out a home equity loan or by recasting our mortgage.  Similarly we could take the money we contributed to our ROTH IRAs out (and allow the earnings to continue to grow).

Where are you all keeping your emergency funds?

15 Responses to “Ask the grumpies: Emergency fund placement”

  1. Revanche Says:

    In order of liquidity: Savings and CDs. Some in i-Bonds for better than minimal interest. Stocks could be sold if necessary. That’d keep us for a good while.

  2. Mrs PoP Says:

    Buffers in 2 checking accounts, additional savings buffers in an online money market account. All very liquid.

    If we needed money beyond that in an emergency, we’d probably write a check against our HELOC (which we can do immediately) and sell stocks out of the taxable brokerage to pay it off depending on the interest rate of the HELOC at the time.

  3. Holly@ClubThrifty Says:

    Ours is in our general savings account. We did spend some of it down this month (and will do a little more of that when we do our taxes).

    • nicoleandmaggie Says:

      Oh, taxes. This year is gonna be interesting… my partner wants to do it himself but I want to hire someone, given all the weird changes we’ve made to our lives this year. I guess we’ll find out…!

  4. Leigh Says:

    I was keeping it at Ally, but then my credit union that I use for daily banking offered a bonus if I moved $50k in deposits to them, so I’m keeping it there for the next few months.

    I also have a bit in I bonds and then taxable stocks. My goal is to keep six months in cash and another six months in the bonds and stocks.

    My emergency fund is extra big right now because when I decided to quit my job, I also decided to keep all savings in liquid cash until I started a new job. I’ll reallocate once I start the new job.

    I don’t like emergency fund in CDs because that breaks the liquidity tenet. Stocks may lose principal, but they’re more liquid.

    • Revanche Says:

      Funny, I always thought of it as the other way ’round. I lose a month of interest if I break a CD, but it’s almost negligible in the big picture whereas selling stocks is a bit more effort in the tax scenario (unless you needed to sell a loser anyway to offset other tax implications and having the cash on hand was advantageous.)

  5. Cloud Says:

    I just realized that I have no idea. Mr. Snarky took over the day to day management of the finances when our first child was born and I spent all my free time lactating… and I never took them back. We do review a couple times a year so I know what is where, and we discuss big decisions. But wow, I’ve totally stopped keeping this stuff in my mind. Huh.

    Anyway, I’d guess we have a chunk in savings accounts (because I insist that at least a couple months’ expenses be absolutely liquid) and then the rest in easily liquidated funds that we decided had a low risk of absolutely tanking. Those are probably through Vanguard.

    We keep a big buffer because we both work in fairly volatile industries, and are even more committed to it now that I’ve gone out as an independent contractor/consultant. Now that we’ve built it to be substantial, we’re willing to take a little more risk with some parts of it- we’d never put our buffer in high growth mutual funds, but we will put some in funds that have a little bit of risk in return for some growth potential. With interest rates so low, we can’t justify keeping all of our buffer in savings.

  6. Amy Says:

    i have some in regular savings accts and then ibonds as well. i don’t really see taxable investment accts as emergency funds though, but that’s just me!

  7. amelie Says:

    We keep an open home equity line – use it just enough so it is not closed for disuse- and enough cash to pay for 2 cars in a money market account attached to my stock fund ( we drive cars until they need a large repair – currently mine has 215K miles and is 11 years old. The ability to buy a car instantly so I can get to work is a deciding factor in keeping this cash!) If we need funds we can use home equity line until we can liquidate other assets. That way our money works for us until we need it but we feel like we can handle emergencies.

  8. monsterzero Says:

    In an online account (ING which was bought by Capital 1) which makes me wait two business days to get money out. Probably not good for a real emergency but that delay helps me not spend it on other stuff. Plus I get–OMG, 0.75%? Really? That’s just sad.

    • The frugal ecologist Says:

      This is what we do exactly, plus some ibonds – purchased before interest rate was 0%(!!) and we have a lot that could be taken out of Roth IRAs which one of us has maxed out almost every year since we started working at age 16. That would be a last resort though.

      My question is what to do with the large amount I have from selling my last house. We won’t buy for at least 18 months, maybe much longer (5 years). Currently sitting in online savings. It seems like there’s gotta be something better but last I checked, none of the long term CDs could meet my online banks interest rate…

      • Debbie M Says:

        I also use mostly ING/Capitol One but each year I put some into I-bonds (I can get all but the last year out at any time). I also have a $500 buffer in my local credit union. And for big things I can withdraw from my Roth IRA. Or for seriously big things, sell my house.

        An old roommate kept her emergency saving in savings bonds (back when you could own the paper). Being able to play with the stack of bonds helped her feel rich and not want to spend the money, plus cashing them out was annoying and also made her not want to spend the money.

        frugal ecologist, you could put some of it in the exciting modern 0% I-bonds (I think there’s a 5K max per year per person)–they will be available in a year but still earning interest however long you want. Or maybe your online savings is best. I do like having some of my money inflation-protected (though with the current low inflation, you’d think they’d have to have a greater than 0% fixed interest rate to sell them; grr). And it’s a way to diversify–savings accounts change the interest they pay unpredictably (mostly downward for years now) and I-bonds change the interest in a different unpredictable way (up AND down).

  9. Rosa Says:

    We just spent all the money in the savings account on home improvements. Which was nominally what that savings account was for but it made me realize I was also emotionally thinking about it as the rainy day fund. Even though it was targeted for mid-range spending all along.

    The actual rainy day fund is in a money market account getting laughably low returns, for purely nonrational reasons, but we capped it and put the excess into a Vanguard index fund at just the right moment that growth there makes up for it. So far.


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