What Savings Vehicle Is Best for One’s Emergency Funds?

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 CD’s, Money Market funds and accounts, Bonds, etc. Remember this is for emergency funds – in other words, maybe I will need it and maybe I won’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 – does anyone have experience using the online Banks vs. your local Bank?

Thanks in advance. W W

[pyriel]

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

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]

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.

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

[Mike]

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

Thanks http://i3.photobucket.com/albums/y72/W_W/graveyard_shift_sm_clr.gif You're a doll. Sorry you have to work so hard. W W

[Mike]

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

[pyriel]

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

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

;-)

Thank you Pyriel, greg and Rolo. Pyriel, I guess you forgive for >> http://i3.photobucket.com/albums/y72/W_W/monstersm.gif


Can you see it now?

[pyriel]

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

[azanon]

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.

Azanon, Thank you. I always like the advice you crank up. You and rokid - any relation? http://i3.photobucket.com/albums/y72/W_W/pilot_trying_to_start_plane_sm_clr.gif

[azanon]

Azanon, Thank you. I always like the advice you crank up. You and rokid - any relation?

lol, cant said i know rokid. But let me guess, he's very "forward"? lol.

I really cant claim credit for that advise anyway. That's pretty standard advice you'd find in a financial book that i'm just passing on. I just happen to agree with it for the reasons I listed. My emergency fund is a mutual fund MM account.

[grandma]

greg wrote:

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.

This article just came out about an upcoming change May 1 on interest rates:

http://www.lasvegassun.com/sunbin/stories/text/2005/apr/04/040405732.html

[pyriel]

One of the reasons why americans don't save as much is because they are into materialistic things (we can't help it, it's our culture). With the proliferation of credit and debit cards, theymade it even easier for people to continue to spend and get more into debt. Because of this, havingsomeone's emergency funds in a tcd or money market account that one can easily access (ex. just by writing a check) is just another recipe for disaster. If one can easily write a check to cash in their emergency funds, why not just leave it in the checking account? The only other reason why someone would leave their emergency funds in tcd or money market is because of higher rates. So, being able to write a check is just an icing on the cake. However, when it comes to rate of return, savings bonds still will come on top in the long run. To my understanding, the reason why weutilize emergency funds is because of emergency. So this means that one really doesn't need them right away or get to the fund often. The premise that one can write a check easily is for convenience. However, when one is in dire needs of their reserve funds, waiting a couple of hours to change them (through a bank) would not matter as long as they know that they can get cash in return.

We've all know that it is easier to save when our employer automatically takes out our TSP contribution. Our IRA contribution is also preferred by mutual funds companies when it is being automatically taken out from our checking account. I am willing to bet that if these contributions were left up to us (where we have to send money to the institutions), many posters here will not be as successful in savings. I've seen it happen and the experts have been telling people for years about this. I guess what I am trying to say is that it is good to have ready cash (or be able to get to them easily), however, sometimes, this becomes an instrument to other people's downfall. I know that not everybody is in the same category, but majority of the people are. Just my .02.

Pyriel

Thank you, http://i3.photobucket.com/albums/y72/W_W/Monkies/CAGE_C22.gif .....................http://i3.photobucket.com/albums/y72/W_W/WW.gif

[pyriel]

Hey, I like that icon. WW, Can I use it?

pyriel wrote:
Hey, I like that icon. WW, Can I use it?Not to change that good-looking pic?! http://i3.photobucket.com/albums/y72/W_W/shy_flower.gif

[pyriel]

WW, You are lucky that I am happily married or else, I'd flirt back. In the meantime, I'd like to introduce you to my flirt representative; MIKE. He is young and single and he boast that he is good with the ladies (whatever that means).

[azanon]

Because of this, havingsomeone's emergency funds in a tcd or money market account that one can easily access (ex. just by writing a check) is just another recipe for disaster.


I dont have that problem. As for how to structure one's money for individual with psychological issues, i'll admit that's not my field of expertise. My guidelines were strictly for normal people who typically make good decisions. However, i suspect someone who cant restrain themselve from buying more things than they should are hardly going to be cured by self-imposed investsment that are only slightly harder to get to.

Personally, i dont like the hassle come tax time of calculating capital gains for a run-of-the-mill emergency (selling bonds is a capital gains event where you get to calculate cost basis, read fun!!!). For me, those happen quite a bit more frequently that I personally desire them. Just a couple months ago, my ac compressor rusted out, and the repair was several hundred dollars. I cut a check from the emergency money market fund. It was easy, quick, and i could pay him the exact amount owed when handed the bill.



WW, You are lucky that I am happily married or else, I'd flirt back.

Live a little ;-)

azanon wrote:
I dont have that problem.
Live a little ;-)
http://i3.photobucket.com/albums/y72/W_W/Smileys/Bubbles/cool_14_text.gif Now I've got to get started on my taxes and stop this hilarity!!

[pyriel]

azanon wrote:

Because of this, havingsomeone's emergency funds in a tcd or money market account that one can easily access (ex. just by writing a check) is just another recipe for disaster.


I dont have that problem. As for how to structure one's money for individual with psychological issues, i'll admit that's not my field of expertise. My guidelines were strictly for normal people who typically make good decisions. However, i suspect someone who cant restrain themselve from buying more things than they should are hardly going to be cured by self-imposed investsment that are only slightly harder to get to.

Personally, i dont like the hassle come tax time of calculating capital gains for a run-of-the-mill emergency (selling bonds is a capital gains event where you get to calculate cost basis, read fun!!!). For me, those happen quite a bit more frequently that I personally desire them. Just a couple months ago, my ac compressor rusted out, and the repair was several hundred dollars. I cut a check from the emergency money market fund. It was easy, quick, and i could pay him the exact amount owed when handed the bill.



WW, You are lucky that I am happily married or else, I'd flirt back.

Live a little ;-)

Az, You have to understand, you are not normal. We posters are not normal. The reason why I say this is because we are more knowledgeable than majority of our counterparts. So for you, it is no problem (just like me). However, majority are not as financially savvy as us. My wife and I learned this the hard way and became a reformist by accident (by accidentally reading Robert Kiyosaki's book). Reading your recent post, I believe that you and I also look at emergency funds differently. My emergency funds are for all of my morgage payments and bills required to sustain me for a year. Nice to have things like ac or water heater is not part of my emergency funds. I put them in a separate funds I call maintenance which I take out every month from my rental. My expense ratio that I allocate is 10% and it gets taken out whether monthly whether I have to make a repair or not.

WW, I would also like to add Azanon as my other flirt representative. ;-) Bye for now, boarding time for LA.

pyriel wrote:
Az, You have to understand, you are not normal...... So for you, it is no problem (just like me). However, majority are not as financially savvy as us..... Reading your recent post, I believe that you and I also look at emergency funds differently.
So Pyriel since your advice was in response to my post, are you saying I'm not normal? http://i3.photobucket.com/albums/y72/W_W/Smileys/Angry/TONGUE15.gif

[cowboy]

Wonder Woman wrote:
pyriel wrote:
Az, You have to understand, you are not normal...... So for you, it is no problem (just like me). However, majority are not as financially savvy as us..... Reading your recent post, I believe that you and I also look at emergency funds differently.
So Pyriel since your advice was in response to my post, are you saying I'm not normal? http://i3.photobucket.com/albums/y72/W_W/Smileys/Angry/TONGUE15.gif
LOL! With the rack that you have shown me in the posts WW. Your far from normal!! Sorry I couldn't resist!! :D

cowboy wrote:

LOL! With the rack that you have shown me in the posts WW. Your far from normal!! Sorry I couldn't resist!! :DAnd I thought you were kool!!! http://i3.photobucket.com/albums/y72/W_W/Smileys/Angry/WORDS_16.gif http://i3.photobucket.com/albums/y72/W_W/Smileys/Sad/K_CRYING1.gif

[cowboy]

To make you feel better WWread my post on Cowboy talk when I post it, Maybe you'll feel better and maybe I will be kool again!

[pyriel]

WW, I meant that in a good way. :*My choice of words are sometimes obscured.