Where to Stash Your Emergency Funds?

[disneysteve]

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.

What sort of ETFs? If it's money you'll need in a year or so, you don't want to be in stocks. And given current conditions, bonds aren't a great idea either.

[jenn_jenn]

Thank you for asking this question! I’ve also been thinking about this. Right now, we have our EF in a plain old savings account but we’re going to switch this over to a tiered approach similar to others.

[myrdale]

I've mentioned this in other threads but:

My paycheck is deposited to a money market account.

I keep $1-3k in checking, I will make one or two transfers from the money market to checking per month as needed.

Any amount over a total of $20k in checking and money market is transferred to a separate money market at another bank. This is a project fund.

I consider the balance of the first money market to be my emergency fund. This is probably not ideal as I am withdrawing from it every few weeks.

The cash in the project fund is still there of course, but I consider it as spent. If I have an expensive month and my checking and savings do drop down, I have to tighten my belt until the balance has recovered.

[crazyliblady]

I only use savings accounts for my emergency savings, but one of them is a high interest earning savings that gets 3.92% up to $1500. If the account hits $1501, the interest rate plummets. So, once the interest posts, I transfer it to a different account that I call slush.

[mattbram]

Personally I keep all my emergency funds in Premium Bonds (UK). I did this when interest rates were very low, but I've actually done ok with them - I've won 3-4 times over the last 1.5 years. Just small amounts, but works out better than the best interest rates.

[disneysteve]

Personally I keep all my emergency funds in Premium Bonds (UK). I did this when interest rates were very low, but I've actually done ok with them - I've won 3-4 times over the last 1.5 years. Just small amounts, but works out better than the best interest rates.

What do you mean by, “I’ve won”. Won what?

[mattbram]

What do you mean by, “I’ve won”. Won what?

Oh my apoligies for not explaining.

In the UK, Premium Bonds are governments issued bonds. Although they give you an equivalent percentage (ie 3% return) that actually refers to the percentage of the pot that they issue as prizes.

So, lets say they have £1 million in the pot. Each month they would issue £30,000 (3%) as prizes.

These are broken down into different amounts, say:

1 x £10,000
2 x £5,000
10 x £1000

Then everyone who has purchased the bonds gets entered into the prize draw to win one of those amounts. The more you saved into the Premium Bonds, the more 'tickets' you get in the prize draw. When I say 'I've won', I just mean I received one of the prizes.

So you aren't guaranteed to win, but you could win big. I think every month at least one person wins £1 million...which considering if you were VERY lucky, you could win that based on a minimum saving of £25, is pretty good.

It is kind of like a lottery, except your money is 100% safe - so even if you don't win, you can pull all your money back at any time (you just won't have earnt interest on it)

[james.hendrickson]

By way of a bit of a follow up here - if you have more money saved - you might be able to talk with your bank and see if they can give you a better interest rate. Banks typically give more interest on larger deposits.

[disneysteve]

By way of a bit of a follow up here - if you have more money saved - you might be able to talk with your bank and see if they can give you a better interest rate. Banks typically give more interest on larger deposits.

If you’ve got your money at a physical bank you’re doing it wrong. At the very least you should use an online bank like Ally. Even better is a brokerage money market like Vanguard.

[Jluke]

By way of a bit of a follow up here - if you have more money saved - you might be able to talk with your bank and see if they can give you a better interest rate. Banks typically give more interest on larger deposits.

define larger deposits…

Ive heard of transfer bonuses for certain amounts deposited. This must be next level savers with serious cash?

Example: my credit union has a range for deposits and rates:
up to 4999 (2.5%)
5000 to 19999 (2.5%)
20000 to 49999 (2.5%)
50000 to 99999 (2.75%)
100000 or more. (3%)

The majority of my cash is not at this place.

[disneysteve]

define larger deposits…

Ive heard of transfer bonuses for certain amounts deposited. This must be next level savers with serious cash?

Example: my credit union has a range for deposits and rates:
up to 4999 (2.5%)
5000 to 19999 (2.5%)
20000 to 49999 (2.5%)
50000 to 99999 (2.75%)
100000 or more. (3%)

The majority of my cash is not at this place.

I really wonder who falls for this sort of thing. If you're the type of person, like many Americans, who never has more than a couple hundred dollars saved, the interest rate doesn't make much of a difference. 2% is only a few dollars a year. But if you've got thousands or tens of thousands or 100K or more, why would you possibly let it sit in an account like this?

Ally is paying 4.2% (FDIC insured)
Vanguard is paying 4.7% on their Cash Plus account (FDIC insured).
Vanguard is paying 5.27% on their Settlement Fund (not FDIC insured).

If you've got 50K to set aside, you'll earn up to an extra $1,260 in a year by not handing it over to the CU.
If you've got 100K, you'll make $2,270 more.

Why does anyone use these accounts?

[cypher1]

Until Kork pointed it out in an earlier response on this thread, I didn't realize I've been following more of a tiered approach for my EF. Originally majority of EF was in Ally savings and I-Bonds. But with figuring out and taking over my parents finances since March, I've realized even as a single person I'd prefer to simplify or minimize my own accounts whenever possible. So for the last few months, I've moved all my EF Ally money into Vanguard money market for future Roths and I-bond contributions, taxables, short term savings. Chasing or tracking interest rates each month like some friends I know to move money between accounts is just not worth the hassle to me.

My main checking at a local CU I keep an extra 4-5K buffer in my checking account but nothing in their savings. So for order-of-operations, first its checking account, Vanguard settlement, I-bonds, and then Vanguard brokerage if I really needed to sell funds (as a last resort). But if I was just starting out I'd keep all my EF in Ally or another HYSA and be done with it.

[LivingAlmostLarge]

I keep ours in capital one and I could move but i've now have bank of america and capital one for 20 years (when it was ING orange) that I don't want to mess with everything and order new checks so though it pass less than ally or goldman sachs i'm too tired to move stuff.

I also keep money in Vanguard and charles schwab mm funds.