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What do you use to hold your emergency fund? I agree with you regarding the useless interest rate, but I can't think of a better way to have money immediately

by dudul 10y ago

What do you use to hold your emergency fund? I agree with you regarding the useless interest rate, but I can't think of a better way to have money immediately available in case of unexpected expense. Do you just use a checking account for that?

amock 10y ago
A CD ladder or I Bonds will earn more than most savings accounts and is still risk free and easily accessible after a short period.
FLUX-YOU 10y ago
Credit cards are fine for it. The logistics of getting money out of a savings account is slightly more annoying than a card if you are in an emergency.
snowwrestler 10y ago
Many Americans depend on their credit cards to cover unexpected expenses.
JoshTriplett 10y ago
Checking accounts, but you need a lot less in your "emergency fund" than you think you do. You don't need 6 months of salary in your emergency fund. In a true emergency, you can always get money from an index fund with at most a few days' notice (one business day). If you need more money than your checking account in less than a few days notice, and you know you can easily cover it by selling shares from an index fund, then charge it to a credit card. That doesn't mean you should ever carry a balance or pay interest; it just means you rely on the fixed period of time between charging something and paying the bill to give you time to sell stock.
- taurath 10y ago
  If the market tanks again like it did 9 short years ago then pulling your money out will be immensely painful.
  - JoshTriplett 10y ago
    Sure. But consider the relative risk of having a large-scale emergency requiring you to sell a large amount from an index fund in a hurry, versus the much more definite loss of return of having large quantities of money in a savings account rather than invested. (Also consider what other mechanisms you have covering such emergencies, such as various forms of insurance, disability coverage through your employer, etc.)
    - taurath 10y ago
      The inflation rate is 1.1% for the past 12 months - its not ideal but IMO its not that terrible relative to the risk of a market downturn blowing up your money. Maybe its a generational thing - I watched the .com bust and then 2007. Stocks are at their highest point ever right now - I'm not so sure it'll beat the mattress.
      - JoshTriplett 10y ago
        I went through both of those busts, and had (a small amount) of stock during the first one. That's when I learned never to buy individual stocks, to do dollar-cost averaging (with a fixed amount every paycheck), and to not pay attention to short-term returns. Another way to look at those two busts: "hey, the market's on sale right now, the fixed amount I put in buys more shares right now".
hermannj314 10y ago
A credit card. I have generally 30 days to convert non-liquid assets into cash to pay it off with no interest payment. This is the whole point of credit cards in my opinion. I don't subscribe to the advice that I need 3 to 6 months of cash sitting in a 0.00% savings account "just in case." I'm not sure why I would need that much money for anything. I can get several thousands of dollars from my brokerage to my checking account in a matter of days. Most other emergencies allow me to arrange payments. I don't know why this is such a bad idea, it has worked great for me so far.
VLM 10y ago
That's what I do. Its strange how banks reward checking accounts but not savings accounts. I get no reward or benefit from my savings account. Due to holding the balance in my checking, I get all my ATM fees auto reimbursed. Its not much but its worth more than keeping it in zero interest savings. There's also a time issue. I have plenty of credit so for less than a week I can use my CC and for more than a week or having to sell stock wait for the transaction to clear and transfer from my brokerage to my bank. I have gotten into time crunches like when my old car died and I wanted $10K or so for the downpayment on the new car and I needed a cashiers check like that weekend, but in the end everything worked out alright. Many years ago I used to participate in Treasury Direct back when the interest rates made that worthwhile. Treasury Direct is (was?) a US treasury program where they'd direct debit and direct deposit t-bills, bonds, etc. Kinda cool back when the interest rate made it worthwhile. I remember some years after I stopped using it they did very early 2FA and I still have a card covered with random numbers laying around somewhere. TBills were sold at a discount for various terms so magically $99XX would disappear from my account and then a month or quarter or whatever later $10000 would direct deposit reappear. Its not worth the effort anymore of course. Maybe if I had $1M. I'm not sure why I'd need to save money anyway. Lets say I saved $10K and got $500K of medical bills or $500K of some kind of legal judgment against me, the only effect of having had $10K in the bank is that I wouldn't have enjoyed having it. Its not like the hospital or IRS would walk away satisfied with $490K unpaid.
mikestew 10y ago
What do you use to hold your emergency fund? Fidelity brokerage account, with very tight stops on any equities that are held in that account (to avoid a pinch should the market poop itself). It's not instantly liquid, as you'll have to wait three days after you sell equities. But my account is a margin account, so I can have nearly instant access to cash (at 7%-ish, IIRC) if I don't use the margin balance for trading (which I generally don't). IOW, I can extract cash from the account via wire transfer, check (if I can ever find the checkbook for that account), or debit card and because I'm using margin balance the equities don't need to get sold. The caveat is that using the margin balance is for a short-term need, like maybe go buy a used car and pay the account back using other funds later. I would not recommend using the margin balance for, say, living expenses after loss of a job. For that you sell the equities.

by dudul 10y ago

amock 10y ago

A CD ladder or I Bonds will earn more than most savings accounts and is still risk free and easily accessible after a short period.

FLUX-YOU 10y ago

Credit cards are fine for it. The logistics of getting money out of a savings account is slightly more annoying than a card if you are in an emergency.

snowwrestler 10y ago

Many Americans depend on their credit cards to cover unexpected expenses.

JoshTriplett 10y ago

Checking accounts, but you need a lot less in your "emergency fund" than you think you do. You don't need 6 months of salary in your emergency fund. In a true emergency, you can always get money from an index fund with at most a few days' notice (one business day). If you need more money than your checking account in less than a few days notice, and you know you can easily cover it by selling shares from an index fund, then charge it to a credit card. That doesn't mean you should ever carry a balance or pay interest; it just means you rely on the fixed period of time between charging something and paying the bill to give you time to sell stock.

taurath 10y ago
If the market tanks again like it did 9 short years ago then pulling your money out will be immensely painful.
- JoshTriplett 10y ago
  Sure. But consider the relative risk of having a large-scale emergency requiring you to sell a large amount from an index fund in a hurry, versus the much more definite loss of return of having large quantities of money in a savings account rather than invested. (Also consider what other mechanisms you have covering such emergencies, such as various forms of insurance, disability coverage through your employer, etc.)
  - taurath 10y ago
    The inflation rate is 1.1% for the past 12 months - its not ideal but IMO its not that terrible relative to the risk of a market downturn blowing up your money. Maybe its a generational thing - I watched the .com bust and then 2007. Stocks are at their highest point ever right now - I'm not so sure it'll beat the mattress.
    - JoshTriplett 10y ago
      I went through both of those busts, and had (a small amount) of stock during the first one. That's when I learned never to buy individual stocks, to do dollar-cost averaging (with a fixed amount every paycheck), and to not pay attention to short-term returns. Another way to look at those two busts: "hey, the market's on sale right now, the fixed amount I put in buys more shares right now".

hermannj314 10y ago

A credit card. I have generally 30 days to convert non-liquid assets into cash to pay it off with no interest payment. This is the whole point of credit cards in my opinion. I don't subscribe to the advice that I need 3 to 6 months of cash sitting in a 0.00% savings account "just in case." I'm not sure why I would need that much money for anything. I can get several thousands of dollars from my brokerage to my checking account in a matter of days. Most other emergencies allow me to arrange payments. I don't know why this is such a bad idea, it has worked great for me so far.

VLM 10y ago

That's what I do. Its strange how banks reward checking accounts but not savings accounts. I get no reward or benefit from my savings account. Due to holding the balance in my checking, I get all my ATM fees auto reimbursed. Its not much but its worth more than keeping it in zero interest savings. There's also a time issue. I have plenty of credit so for less than a week I can use my CC and for more than a week or having to sell stock wait for the transaction to clear and transfer from my brokerage to my bank. I have gotten into time crunches like when my old car died and I wanted $10K or so for the downpayment on the new car and I needed a cashiers check like that weekend, but in the end everything worked out alright. Many years ago I used to participate in Treasury Direct back when the interest rates made that worthwhile. Treasury Direct is (was?) a US treasury program where they'd direct debit and direct deposit t-bills, bonds, etc. Kinda cool back when the interest rate made it worthwhile. I remember some years after I stopped using it they did very early 2FA and I still have a card covered with random numbers laying around somewhere. TBills were sold at a discount for various terms so magically $99XX would disappear from my account and then a month or quarter or whatever later $10000 would direct deposit reappear. Its not worth the effort anymore of course. Maybe if I had $1M. I'm not sure why I'd need to save money anyway. Lets say I saved $10K and got $500K of medical bills or $500K of some kind of legal judgment against me, the only effect of having had $10K in the bank is that I wouldn't have enjoyed having it. Its not like the hospital or IRS would walk away satisfied with $490K unpaid.

mikestew 10y ago

What do you use to hold your emergency fund? Fidelity brokerage account, with very tight stops on any equities that are held in that account (to avoid a pinch should the market poop itself). It's not instantly liquid, as you'll have to wait three days after you sell equities. But my account is a margin account, so I can have nearly instant access to cash (at 7%-ish, IIRC) if I don't use the margin balance for trading (which I generally don't). IOW, I can extract cash from the account via wire transfer, check (if I can ever find the checkbook for that account), or debit card and because I'm using margin balance the equities don't need to get sold. The caveat is that using the margin balance is for a short-term need, like maybe go buy a used car and pay the account back using other funds later. I would not recommend using the margin balance for, say, living expenses after loss of a job. For that you sell the equities.