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 Post subject: Where do you keep your Emergency Fund?
PostPosted: Wed Feb 27, 2013 1:20 pm 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 249
Location: Pittsburgh
When I first started funding an emergency fund, ING was paying over 4%. My expenses and EF were much lower then, and I was happy to receive 4% on that money. Interest rates are sad right now, but what is sadder is I have not questioned myself if my ING account is the best place for my EF.

Where do you keep your EF and what type of return are you getting on that money?

I know some people use their Roth IRA as their EF. Thoughts on that approach?


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Wed Feb 27, 2013 1:38 pm 

Joined: Sat Oct 22, 2011 8:19 am
Posts: 80
I have a checking account that pays 2.5% interest (it was 3.5% but they just lowered it.) and I have a Car Fund which is with ING/Cap1. I keep my hands off my Roth IRA's and I won't touch them unless it becomes a life or death situation. If you're looking for a higher interest rate, look into credit unions. Some of them are offering 'decent' interest on EF but remember the point of an EF isn't money making, it's security.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Wed Feb 27, 2013 2:43 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
My emergency fund is as follows:

1) Cash in a "high" yield savings (usually keep $10k or so)
2) 5 yr CD's
3) I-bonds
4) stocks

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Wed Feb 27, 2013 5:29 pm 

Joined: Tue Aug 21, 2012 1:33 pm
Posts: 21
I keep the first $1000 in a money market account attached to my checking acount with no transfer delay. Most emergencies that mean you need cash within 24 hours will be under $1000 is my bet. This is at really low interest, perhaps .01%.

Then I keep about 2 months expenses in an Ally account with nearly 1% interest. It takes several days for transfers to go through, but an emergency that would require more than $1000 would usually give me enough time to transfer.

The problem is, even CDs don't give you much more than 1% interest, while losing you the quicker access to the cash. An emergency fund larger than 6 months of expenses should probably no longer be an "emergency fund" and instead be invested in some way at your risk tolerance, that could allow access within 6 months. (So maybe not real estate or peer to peer lending).


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Wed Feb 27, 2013 6:26 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1590
Location: Seattle, WA
I keep the bulk bulk of my family's six-month emergency fund at ING. I keep a portion in a savings account at my local credit union for nearly instant access. (In fact it's called an Instant Access Account, but that's just a coincidence.) I can't keep the fund in a Roth IRA because we are maxing out our Roths already, though, if an emergency were dire enough, we could of course draw on our existing Roths as a resource.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Thu Feb 28, 2013 10:05 am 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 249
Location: Pittsburgh
Thanks for the replies. If you haven't stumbled upon my other recent threads, I currently have $21k (6 months of expenses) in my EF. I was planning to add another $4k or $5k next week, so it will at leave have $25k. The thought of having that much money earning next to nothing really bothers me.

I understand the purpose of an emergency fund, but there is no reason for the entire amount to sit in an account making 1%. I don't like the idea of moving some to CDs because those rates are really low as well.

Of the $41k sitting in our Roth IRAs, $38k is from contributions. Clearly not the reason we opened Roth accounts, but I am thinking they could at least partially double as our EF. Perhaps just 2 or 3 months of expenses in the ING account?

If I were to reduce my ING account to $10k (just $800 under 3 months expenses), I would have $15k to make better use of. It would take $9200 to max out both of our Roths for 2013, but I kinda like the idea of putting the bulk or all of the $15k toward the mortgage. We are on pace to pay it off within 33 months. A $15k additional principal payment (along with our monthly additional principal payments we already make) would knock 12 months off the mortgage. Compared with earning 1%, that is very tempting.

Additional thoughts?


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Thu Feb 28, 2013 10:28 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
DaveInPgh wrote:
Thanks for the replies. If you haven't stumbled upon my other recent threads, I currently have $21k (6 months of expenses) in my EF. I was planning to add another $4k or $5k next week, so it will at leave have $25k. The thought of having that much money earning next to nothing really bothers me.

I understand the purpose of an emergency fund, but there is no reason for the entire amount to sit in an account making 1%. I don't like the idea of moving some to CDs because those rates are really low as well.

Of the $41k sitting in our Roth IRAs, $38k is from contributions. Clearly not the reason we opened Roth accounts, but I am thinking they could at least partially double as our EF. Perhaps just 2 or 3 months of expenses in the ING account?

If I were to reduce my ING account to $10k (just $800 under 3 months expenses), I would have $15k to make better use of. It would take $9200 to max out both of our Roths for 2013, but I kinda like the idea of putting the bulk or all of the $15k toward the mortgage. We are on pace to pay it off within 33 months. A $15k additional principal payment (along with our monthly additional principal payments we already make) would knock 12 months off the mortgage. Compared with earning 1%, that is very tempting.

Additional thoughts?


a classic case of reaching for yield.

But, riddle me this...is your Roth IRA all in "safe" investments? I doubt it. But I could be wrong. The point is, you're comfortable falling back on that even though it is more aggressively invested, so why won't you do that with your e-fund?

At the end of the day, $25k may seem like a lot today. But, as you grow your egg, it will relatively be less significant. But, if you're going to take risks with the money, just make sure they are the "correct" risks. I would rather invest the $15k in a nice stock mutual fund (which is tax efficient) rather than paying down the mortgage (especially if you have a low rate) b/c paying down the mortgage helps none if you need the money tomorrow (if you could totally wipe out the mortgage, this would be a different conversation).

At the end of the day, here is my "oh crap" plan:

1) cash (includes e-fund)
2) taxable accounts
3) Roth IRA
4) tap equity in my house
5) kids' college accounts

I need a couple of these, but not all of them. At least one. But, as your taxable account gets bigger you can take bigger risks and still be ok. Maybe now is the time to expand your taxable account (I'd still do Roth IRA contribution first)?

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Thu Feb 28, 2013 11:19 am 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 249
Location: Pittsburgh
Bichon, correct assumption. Our Roth IRAs are in the Fidelity 2050 Freedom Fund, which has over 86% in equity. So your point is well taken.

Other than our 401ks and Roth IRAs, we do not have any other investment accounts. We also do not have a college fund worth mentioning. I am honestly not sure how I want to tackle that one. My wife and I both put ourselves through college with little financial assistance from our parents. I would like to be in the position to help our child with that burden, but not at the expense of our retirement.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Thu Feb 28, 2013 1:31 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Just to clarify, I'm not advocating an 86% equity allocation in your e-fund. Rather, if you have a base amount ($10k - $20k), maybe keep that in cash and invest the rest in a broad stock fund or something of the like. It's a risk, but it will probably turn out ok and may psychologically help you get past the need to reach for yield.

Financing a child's college education is a personal choice. My opinion is that it should only be done once everything else is under control. You be the judge of what that means. Your child will have the opportunity to go to college regardless of what you do. Whether the investment makes cents all depends on what they choose to major in.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Fri Mar 01, 2013 8:53 am 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 249
Location: Pittsburgh
Moving any part of the EF out of our ING savings account will be a tough sell at home. My wife's risk tolerance is lower than my own. I think 3 months of expenses is sufficient for the savings account.

If we were to use some of the savings to max out our 2013 Roth contributions, our total contributions would be close to $50k. Yes, it would be at a high equity allocation, but I suspect that I would still have access to an additional 3 to 6 months of expenses in an emergency.

I know the idea to pay down the mortgage isn't the best alternative financially speaking. I think it appeals to me psychologically because it would be a giant step toward being totally debt free.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Sat Mar 02, 2013 11:54 am 

Joined: Fri Jun 25, 2010 3:06 pm
Posts: 81
DaveInPgh wrote:
If I were to reduce my ING account to $10k (just $800 under 3 months expenses), I would have $15k to make better use of. It would take $9200 to max out both of our Roths for 2013, but I kinda like the idea of putting the bulk or all of the $15k toward the mortgage. We are on pace to pay it off within 33 months. A $15k additional principal payment (along with our monthly additional principal payments we already make) would knock 12 months off the mortgage. Compared with earning 1%, that is very tempting.

Additional thoughts?

One interesting thing about paying off the mortgage is once it's fully paid off, you need less in the emergency fund but contributing to the emergency fund becomes easier than ever. Personal finance is funny like that.

Paying the mortgage is the best guaranteed rate of return you'll find. That being said, I still maxed out my Roth IRA each year before paying down the mortgage. Maybe you can split the difference and contribute 5k to the Roth and 10k to the mortgage. Or reduce the ING to 5k and have more money for both (equity investments can still be sold if there is a bigger emergency).


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Sat Mar 02, 2013 1:28 pm 

Joined: Tue Jan 20, 2009 11:38 pm
Posts: 78
I'm in the same boat. Have had my EF with ING since 2008 or so (as I built it), and watched rates drop. It's still with ING, at 30K now. I have an auto-withdrawal of $1K a month to ING for short-term savings (down payment).

My husband has an EF with a credit union. We want to combine those now and are trying to decide where/how to do that. But we keep putting off any action because we aren't making it a high priority.

We've talked about putting 75% into a CD, and leaving 25% in ING. The advice here is helpful!


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Mon Mar 04, 2013 10:46 am 

Joined: Mon Mar 04, 2013 10:13 am
Posts: 8
I keep my cash emergency fund in ING. One thing I would NOT do is use your Roth as an EF. Even if it's technically possible, you're robbing your future to use it. Personally, i'd take a higher rate path before using my roth because once you pull the funds out of a roth, you can never put them back in. so you're not only losing return for this year, but for the next 40 years which amounts to a Huge interest rate.

If you have a home, having a equity line of credit out that you can tap, but don't use except for real emergencies is nice. Then you can keep your other EF funds in something not quite as liquid because you can draw on your ELOC until you can pull your real EF savings.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Mon Mar 04, 2013 12:28 pm 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 35
I keep my emergency fund at Ally Bank. The time it takes to transfer funds keeps me from looking at it as a slush fund. As my ballance has increased, I have started to build a CD ladder while keeping a minimum portion in a Money Market fund for quicker access. The interest rate overall is a bit over 1%, but as this as a secure (cash) asset I am not to concerned with the low rate.

I also work to maintain a minimum balance in my checking account which pays zero interest but functions as a short term emergency fund. This keeps me from having to touch the Ally EF unless things get serious.


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 Post subject: Re: Where do you keep your Emergency Fund?
PostPosted: Mon Mar 04, 2013 6:49 pm 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 249
Location: Pittsburgh
Thanks again for all of your responses. My wife and I discussed my ideas and she is ok with reducing the ING account to 3 months of expenses. She is also ok with either using the funds to max out our Roths or pay down the mortgage. I know contributing to the Roths is the safer of the two options, but I am going to go with paying down the mortgage.

Some of the things that factored into my decision are below.

If the reason to dip into our EF is due to job loss, then my monthly expense calculation is high. We currently pay $200 additional principal that we could stop paying. We also would save $400 in daycare expenses. If job loss is not the reason, we could reduce our 401k contributions in the short term to free up some cash. We both contribute around 20% to our 401k, so there is plenty of room to reduce that (in an emergency) and still make sure we get the company match.

Unless my wife and I quit or get terminated, we will get a severence package. My severence would include 40 weeks of salary, and my wife's would be 38 weeks. If either of us get laid off, we will not have to dip into the EF immediately.

At the end of the day, I just don't view this decision as a huge risk.


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