Where to Stash Your Emergency Funds?

[james.hendrickson]

SA Forums Community,

I've finally got my emergency savings where I want them. It didn't take nearly as long as I thought once I started focusing.


So the question I am dealing with now is: where do I keep the money?


All the available options aren't great from a risk standpoint or liquidity standpoint. For example:

Series I bonds: These will keep pace with inflation, but are not liquid.

Money market/savings accounts/CDs: These are risk free, but will lose value under current inflationary conditions

Stocks: obviously too risky

Crypto: obviously too risky

Bonds: also risky given current interest rates and won't hold value against inflation.

So...what are you guys doing with your emergency fund money?

[kork13]

I've always followed a tiered approach to my EF. How it's currently setup:

1) $2k float in our checking account to even out monthly spending, and to cover any smaller, unexpected costs.
2) I normally have $10k-$20k in our online savings account as a general-use bucket. For normal operating expenses & large, unexpected costs, this is a buffer that I use to reserve our actual EF for true emergencies.
3) $5k (1mo expenses) in an online savings account for bigger 'emergencies'
4) Depending on circumstances, I might tap our sinking funds (online savings account) that generally have anywhere between $10k-$40k.
5) $20k (5mo expenses) in I-Bonds for the bulk of my EF. If required, I can liquidate any dollar amount & have it in my accounts within 3-4 days.
6) Taxable investments (variety of stocks and stock MFs) would be tapped if for some reason we need even more than all of that can cover.

[disneysteve]

Your emergency fund is money you need easy access to in an emergency. It isn't about earning a great return. It's also not about taking a bunch of risk.

That said, keep in mind that it's exceedingly unlikely that you would ever need your entire EF at once so it's okay to have those funds in more than one place. An online money market like Ally for the most liquid part. A CD or I bond for the rest. A CD can be cashed in at any time. You just lose some interest. An I bond can be redeemed anytime after 1 year, also with some loss of interest.

As you said, stocks, crypto, and other bonds don't fit the bill here.

Personally, we have money in Ally, CDs, and I bonds.

[disneysteve]

5) Taxable investments (variety of stocks and stock MFs) would be tapped if for some reason we need even more than all of that can cover.

Agreed. Once your portfolio has grown to that point, the EF really becomes somewhat less important. We've got a 7-figure portfolio, about half of which is in taxable accounts, so sitting on a huge pile of cash isn't nearly as necessary as it once was. Now our "EF" is mainly to protect us from having to sell investments during a market downturn.

[kork13]

Agreed. Once your portfolio has grown to that point, the EF really becomes somewhat less important. We've got a 7-figure portfolio, about half of which is in taxable accounts, so sitting on a huge pile of cash isn't nearly as necessary as it once was. Now our "EF" is mainly to protect us from having to sell investments during a market downturn.

That's it exactly. Short of needing to pay ransom or the house collapses in on itself, there's very little that would be a true emergency for us that would significantly strain our ability to handle it. The EF and our various cash accounts serve to protect our investments, and keep our lives organized & predictable.

[james.hendrickson]

I've always followed a tiered approach to my EF. How it's currently setup:

1) $2k float in our checking account to even out monthly spending, and to cover any smaller, unexpected costs.
2) I normally have $10k-$20k in our online savings account as a general-use bucket. For normal operating expenses & large, unexpected costs, this is a buffer that I use to reserve our actual EF for true emergencies.
3) $5k (1mo expenses) in an online savings account for bigger 'emergencies'
4) Depending on circumstances, I might tap our sinking funds (online savings account) that generally have anywhere between $10k-$40k.
5) $20k (5mo expenses) in I-Bonds for the bulk of my EF. If required, I can liquidate any dollar amount & have it in my accounts within 3-4 days.
6) Taxable investments (variety of stocks and stock MFs) would be tapped if for some reason we need even more than all of that can cover.

Like it - a tiered approach. Thanks Kork.

[james.hendrickson]

Your emergency fund is money you need easy access to in an emergency. It isn't about earning a great return. It's also not about taking a bunch of risk.

That said, keep in mind that it's exceedingly unlikely that you would ever need your entire EF at once so it's okay to have those funds in more than one place. An online money market like Ally for the most liquid part. A CD or I bond for the rest. A CD can be cashed in at any time. You just lose some interest. An I bond can be redeemed anytime after 1 year, also with some loss of interest.

As you said, stocks, crypto, and other bonds don't fit the bill here.

Personally, we have money in Ally, CDs, and I bonds.

Makes sense thanks Disneysteve!

[Scallywag]

Our entire emergency fund and 50% of our downpayment fund is in a plain, vanilla, low paying savings a/c at Wells Fargo. Up until a few days ago, some of the downpayment at TD Ameritrade lost 5K. I got the message and cashed out everything.

Further savings will confine to only be at Wella Fargo where it's easy to access if / when we need them.

Whatever you need in savings is best kept in savings, unless you've reached a large 7 figure portfolio in taxable as Steve said. I consider our ROTH contributions to be saving, too, esp in really dire situations where we run through everything else and are imminently danger of becoming homeless or dying. Dramatic times, so to speak

[james.hendrickson]

Our entire emergency fund and 50% of our downpayment fund is in a plain, vanilla, low paying savings a/c at Wells Fargo. Up until a few days ago, some of the downpayment at TD Ameritrade lost 5K. I got the message and cashed out everything.

Further savings will confine to only be at Wella Fargo where it's easy to access if / when we need them.

Whatever you need in savings is best kept in savings, unless you've reached a large 7 figure portfolio in taxable as Steve said. I consider our ROTH contributions to be saving, too, esp in really dire situations where we run through everything else and are imminently danger of becoming homeless or dying. Dramatic times, so to speak

Thank you Scallywag!!!

[bjl584]

I have 3 separate savings accounts that I spread my EF across.

I also keep a buffer in my checking account

[LivingAlmostLarge]

I'm like kork with tiered approaches but I've been running leaner since last year

1. $1k buffer in checking
2. $10k EF (recently since I bought so much I bonds)
3. $12k Sink Funds - I decided to put aside $1k/month to even out insurance, kids activities, etc
4. $16k Roth IRA (invest annually in january but saved monthly throughout year)
5. $12k Property Taxes - paid 2x/year
6. I bonds - $100k this is our real EF. If we are without a job for some reason I will cash this out. Personally we have a rather large mortgage, monthly spend, and property taxes that makes it very uncomfortable for me to run super lean.
7. Taxable account

I also do not have bonds anywhere else in the portfolio anymore period. Only cash and the i-bonds. Everything else is very aggressively invested mostly in voo and qqq and IWY and VXUS and a few individual stocks. So our portfolio is something like 5% cash/bonds. I haven't decided if we want it to be more conservative but I suspect the answer is no. I need cash in case we are out of a job. Otherwise I think we're okay with enough flex to cover most monthly things. I mean we usually have $50k-60k cash before even tapping our ibonds.

[scfr]

James - What about an online savings or checking account that pays a bonus?

[james.hendrickson]

James - What about an online savings or checking account that pays a bonus?

Solid idea. I just have to find one!

[scfr]

Solid idea. I just have to find one!

My favorite places to look for bonuses are the Doctor of Credit and DepositAccounts web sites.
Marcus currently is offering a $100 bonus if you deposit $10K and keep it there for at least 90 days. The web sites mentioned above will be able to point you to other options.

[ryan_themoneyguy]

A high-yield savings account is the best place for the portion of the emergency funds you need liquid. Beyond those, you could consider investing in low-cost ETFs. This should be money you won't' need for at least a year to avoid being taxed at your income tax rate.