Emergency Fund/Long Term Savings?

[WendyZ]

I've been working on building our emergency/LT savings fund. My plan was to have a savings acct in our local bank (that's with our cking and mortgage). That was to be used for things like unexpected bills, eye exams, etc. Then I opened a money market acct at with my edward jones rep. So this is a mututal fund money market covered by the SIPC. Here I was going for long term savings with this acct, eventually up to a yrs worth emergency fund. Now with the way things are I'm rethinking if that's the best way to go.
I understand the SIPC is not the FDIC. I believe I understand the SIPC (they don't guarantee the amount in your acct, they give you back the shares you have in the mutual MM fund) Right? So you can possibly loose $ here. The rep did say you can loose but it was VERY unlikely for that to happen. I even called on Friday just to clairfy and they said it was still safe. But this is $ I can't afford to loose.
I know some might say to go to an online bank, but I'm not comfortable with that yet. I'm sure I'm crazy, but I'm just not there.
I'm looking for advice on how where you put your savings. I was trying not to have all my savings in one place either, while making a bit on interest. In these times though I have learned very quickly that loosing everything I have just inorder to make better interest won't work...I can take that risk. I hope I'm making sense here....Thanks!

[scfr]

Yes, you're making sense.

If you want the absolute guarantee that your money is safe, then yes, you would want to move it to an FDIC-insured MMA. Personally, I think it makes sense to have your funds in at least 2 banks. If you're not comfortable with an on-line bank, then start rate shopping at your local bank branches. Don't just take it for granted that the best rate is the one they publish ... Sometimes banks will offer better rates for "new" money, or if there is a new branch that opened recently, they will sometimes offer incentive money for new customers. So call around, or stop by and visit the branches, and ask what sorts of promotions they have going on.

Having said that, your MMF is probably safe. Look at what the MMF invests in, and how safe are those investments. For example, does the MMF invest primarily in US Treasuries? That's pretty safe.

Hope I'M making sense!

[disneysteve]

First, I think you need to distinguish between an emergency fund and long-term savings. They are not the same thing and, most likely, should not be kept in the same place. An EF is money you could need tomorrow or next week or next month. LT is money you don't anticipate touching for 5 or 10 or 20 years.

I happen to believe that money market mutual funds are safe places to keep your money, even given current market issues, but lots here disagree with me, and I think they have a very valid point. High-yield savings accounts insured by FDIC are as safe as you can get. Unless the interest on a MMF is significantly higher, there really isn't much point to using one unless it is just to park money while waiting to invest it. For example, I have money in Vanguard Prime within my Roth. Periodically, I transfer money from that fund into equity funds.

You are correct that we will recommend an online bank because that's where the best rates are and you still have the full FDIC protection. Why use a local bank for 0.5% when you can use an online bank for 3%? It just doesn't make any sense.

[Joan.of.the.Arch]

If you are shopping for a bank, consider adding credit unions to your search. Almost all credit union accounts are insured. I was happy to find a credit union this summer offering 5.01% on a draft (checking) account with no minimum deposit. I'm using that for our emergency savings right now. The accessibility of a checking account just blocks from home makes the CU attractive. I have no idea how long the good interest rate will hold out, but for now, it suits me.

[WendyZ]

Thanks for the replies. I'm talking about my energency fund. It would be used for emergencies, DH losing his job, something large breaking around the house, etc. I guess I shouldn't call it long term savings b/c I have all that money in 401K or Roth accts. That's money I anticipate needing for 10, 20 yrs.
Yes, my bank interest is 0.5% and my MMFund is 1.92%.

[jIM_Ohio]

I've been working on building our emergency/LT savings fund. My plan was to have a savings acct in our local bank (that's with our cking and mortgage). That was to be used for things like unexpected bills, eye exams, etc. Then I opened a money market acct at with my edward jones rep. So this is a mututal fund money market covered by the SIPC. Here I was going for long term savings with this acct, eventually up to a yrs worth emergency fund. Now with the way things are I'm rethinking if that's the best way to go.
I understand the SIPC is not the FDIC. I believe I understand the SIPC (they don't guarantee the amount in your acct, they give you back the shares you have in the mutual MM fund) Right? So you can possibly loose $ here. The rep did say you can loose but it was VERY unlikely for that to happen. I even called on Friday just to clairfy and they said it was still safe. But this is $ I can't afford to loose.
I know some might say to go to an online bank, but I'm not comfortable with that yet. I'm sure I'm crazy, but I'm just not there.
I'm looking for advice on how where you put your savings. I was trying not to have all my savings in one place either, while making a bit on interest. In these times though I have learned very quickly that loosing everything I have just inorder to make better interest won't work...I can take that risk. I hope I'm making sense here....Thanks!

You need to understand what you are investing in. Do you know what a money market is? Do you know why it can pay a higher interest rate than a savings account?

Money markets will invest in short term money securities (bonds, CDs and some even in mortgage backed securities). If the value of the underlying investments goes down, it is possible the share price of the money market will be LESS than $1. That is what your broker needs to tell you as well (but maybe he doesn't know what the money market fund invests in).

You did not mention what the money market is used for in your situation. Maybe look to a T Rowe Price for example as a larger more reputable fund company you trust. Lower fees and no commissions either.

[atomicrc11]

Depending on how much you have, you should look into other investments as well. I would say the MMF is ok as well, but you need to be comfortable with the risk. I keep about 2 months expenses in my local bank in a FDIC insured MMA that pays well and then have the rest in an online bank with some in a savings account and the rest in CD's. That makes up 6 months expenses. Then, any money over that is in a conservative allocation mutual fund. This is to prevent inflation from eating away at the principal.

[poundwise]

Yes, my bank interest is 0.5% and my MMFund is 1.92%.

There is no way I would have any of my money, for any purpose, in accounts that paid this little in interest.

Whether it is with a bank or credit union, online or otherwise, one can easily find rates that exceed those pitiful figures.

I would also not put any money that I classified as my emergency fund in anything other than an insured, interest-bearing account. Other monies, particularly long-term savings, yes; emergency funds, no.