Thread: Dump your savings account

This is an exerpt of an email I wrote to my friends. It had links in it, but I posted the most relevant one. Don't take the title too seriously. That line is mostly for people, like my friends and family, that hold large sums of money in savings acounts.

I'm don't mean to tell any of you seasoned investing vets how to invest your money, but maybe you can pass this info on to your less financial savvy mates.

http://moneycentral.msn.com/content/...ra/P149139.asp

I just read this article. To summarize it says that holding cash will eat away at your profits over a long period of time. Cash accounts (saving accounts, certificates of deposit and money market accounts) may only move upwards, but it only does so by a few percentage points and after taxes it could possibly put you in a higher bracket and lose you money. Oh, and don't get me started on inflation.

So, let me bottom line it. Cash should be a short term investment and kept to a minimum. Financial advisers recommend that you keep three months worth of expenses in cash. That's fine, but you can do better than keeping it in savings. What I've done is I've bought into a short term bond fund. What I like about short term bond funds is with most fund families you can buy and sell them as often as you wish and be exempt from frequent trading cost.

There are drawbacks in holding your emergency fund in a mutual fund as opposed to a bank account. One big downside is it usually takes 3 to 4 business days before you see the money in your bank account. If you need the money, in cash, this very second then you're just out of luck. Also, my experience with USAA shows that I have to call them before I see any money out of my investment accounts into my bank accounts. So if I decide I want those funds after office hours, then I'll have to wait until they go back to the office in order to put in my electronic transfer.