What Savings Vehicle Is Best for Oneâ€™s Emergency Funds?

03-26-2005, 04:37 AM

Tax Time is Here and Time to put my house in Order
I keep putting this task off > figuring out where besides my checking or savings account I should be docking my emergency funds. I start comparing all the rates and percentages among my choices, i.e., Fed Credit Union, Local Banks, and Internet Banks, and at Bankrate.com, factoring in any of the extra features one bank offers vs. another (like NOW checking, Premium savings, etc), then I get lost in confusion and never do anything. I am referring to vehicles such as CDâ€™s, Money Market funds and accounts, Bonds, etc. Remember this is for emergency funds â€“ in other words, maybe I will need it and maybe I wonâ€™t. Theoretically, let us say we are talking $10-20K.
Has anyone been in a similar situation and figured it all out?

PS It seems these online Banks frequently have higher rates â€“ does anyone have experience using the online Banks vs. your local Bank?

Thanks in advance. W W

**pyriel** · 03-29-2005, 12:09 AM

Hello WW,

I like US Savings Bonds. They are liquid but yet tedious to cash in. Rate is better than some TCDs i've seen and you won't get taxed until you cash it in. My reserve fund is in US Savings Bonds...

Pyriel

03-29-2005, 12:37 AM

pyriel wrote:

Hello WW,

I like US Savings Bonds. They are liquid but yet tedious to cash in. Rate is better than some TCDs i've seen and you won't get taxed until you cash it in. My reserve fund is in US Savings Bonds...

Pyriel

Savings Bonds pay interest only twice a year. Usually Emergency Funds are to be used for Emergencies that you don't plan. If an emergency come up right before the bi-annual interest payment, you lose up to 6 months of interest. Plus if you need the money right away and you can't find the physical bond, there will be a delay in getting a replacement; so you would be out of luck.

**Rolo** · 03-29-2005, 03:25 AM

I use NetBank for checking and MMA. The MMA is my "level one cash reserves". Scottrade is my "level two cashreserves" where I have the emergency money invested in low-risk/low-volatility funds or stocks. I cannot possibly bring myself to have more than $2K in a MMA earning only ~2%.

If you need cash for an emergency, there's a good chance you'll need it in-hand and therefore should have liquidity. I have a debit card and checks for the MMA and Scottrade account. If I need Scottrade cash immediately, I can sell the equities through my phone's web browser to free the funds.

The process would be to fund the crisis with a credit card and, within the 25-day grace period, pay off the credit card with MMA or Scottrade accounts. I do all of this on the computer.

03-29-2005, 01:59 PM

Thank you Pyriel, greg and Rolo. Pyriel, I guess you forgive for >>
[img]file:///C:/Retire/TSP%20Forum/avatars/monster%20sm.gif[/img]

**Mike** · 03-30-2005, 06:09 AM

Primary emergency reserve: netbank money market / checking. I cap mine at $4000 instead of $2000, though. My reasoning is that by having more in there, I won't spend it, and Ican quickly tap into it whenever I feel like making an extra student loan payment (which comes up now and then due to the reimbursement program I am enrolled in).

My secondary option is my Roth IRA in Scottrade. I doubt I'll ever touch it, though. When I have more money, I'll come up with a better second option - I'll probably open a regular brokerage account and dump money into a short term bond fund with a minimal / no redemption fee. Someone mentioned a site with free trading, but the minimum to get in is $5,000. I won't be able to tackle that one 'til July. :P

03-30-2005, 06:46 AM

Thanks You're a doll. Sorry you have to work so hard. W W

**Mike** · 03-30-2005, 08:15 AM

I'm sorry I have to work so much, too. It really puts a damper on my skirt-chasing.

**pyriel** · 03-30-2005, 12:06 PM

Wonder Woman wrote:

Thank you Pyriel, greg and Rolo. Pyriel, I guess you forgive for >>
[img]file:///C:/Retire/TSP%20Forum/avatars/monster%20sm.gif[/img]

Hmmm.... Is it a bird? Is it a plane? No, it's superbox with an X...

;-)

03-30-2005, 12:18 PM

Thank you Pyriel, greg and Rolo. Pyriel, I guess you forgive for >>

Can you see it now?

**pyriel** · 03-30-2005, 12:27 PM

Hahahaha... My favorite pic.... I hope you'd know your place woman:!... You don't want to mess with the man of the house...

**azanon** · 03-30-2005, 01:22 PM

W W,

I believe a mutual fund money market account makes the best emergency fund. This not to be confused with the crappy money market accounts sold at your local bank.

For one, they'll give you a checkbook so you can write checkes on the money, on the spot. Second, the interest rates is usually damn good (compared to other less easy to get to interest bearing investments) and the rates can often approach that of CDs.

Emergencies = not a lot of time. Spotting poor emergency fund choices is easy; if you have to "sell" anything to get the money, you know that's a poor choice. Second, if the investment can ever lose value (ie: bonds), you know its a poor emergency fund choice. Emergency fund to me means very quickly available, and that you have (at least) the amount of money you put into it (and normally more because it is interest bearing). The purpose is not to earn a killer rate of return. Investments that earn better returns than mutual fund money market accounts cannot be liquidated as quickly.

It takes 2 minutes to write a check and hand it to someone. That's pretty quick and handy for emergencies.