$10,000 Emergency Fund - Just let it sit in the bank?

rhino wrote:

Sam wrote:

We keep about 2/3 of our emergency fund totally liquid (ING savings account) and the rest in a CD ladder (also at ING). Each CD in our CD ladder is earning between 2-3.5% which gives us a little more interest but since it is a ladder, every other month one of our CD comes up for renewal. We sweep the interest we earn on our CDs into our ING savings account and renew each CD assuming we don't need the funds, if we needed the funds we would not roll over the CD. And if we really got into a bind we could cash out the CD and take a penalty, three months interest.

I do something like this also.

If you lose your job; you won't need all 7 months (or whatever) of expensive on zero day of unemployment. Also if you do happened to need the "lump sum" at one time, then taking a small hit on the CDs is probably the least of your worries.

That is kind of why we have never kept an emergency fund (saciledge here I know). We have always kept a portion of our investments in safe, liquid form (money market or T-bills) so it was available if needed.

I don't really see anything wrong with an EF I just think of things a little differently. I take an accounting view of "accounts." I might have a money market "account" at my broker with $25000 in it. $15000 might be allocated to EF account while $10000 might be a cash allocation as part of an investment portfolio. It is really semantics but I personally don't like having a bunch of little accounts at different institutions.

Except for one (slight) concern, I would prefer to have everything dumped into a single brokerage account that I could write checks on and then I would allocate the sum to different "accounts" for various purposes (retirement, car, EF, etc.) on paper myself. My slight concern is that lumping everything exposes me to a major hassle if the firm I choose goes out of business. It is highly unlikely but two years ago it would have been unthinkable to suggest that Merril lynch and Lehman brothers would be gone. No one lost money in their accounts but they did experience hassles during teh changeover.

DH - Sounds like you do have an emergency fund in that you have monies in liquid form that you can tap into in an emergency.

I like to have a bunch of different accounts, we have our EF fund/ our CD ladder EF fund, vacation/travel, holiday, house, baby, escrow, and we even have a fun account - all at ING. For me, not so much for Mr. Sam, the visual of separate accounts helps me plan and keeps me motivated.

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Sam

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Sam wrote:

DH - Sounds like you do have an emergency fund in that you have monies in liquid form that you can tap into in an emergency.

I like to have a bunch of different accounts, we have our EF fund/ our CD ladder EF fund, vacation/travel, holiday, house, baby, escrow, and we even have a fun account - all at ING. For me, not so much for Mr. Sam, the visual of separate accounts helps me plan and keeps me motivated.

Ah ha! And for me the motivation is in seeing that one BIG number on the statement.

But I don't see anything wrong with yoru approach. It is personal preference.

And you're right. We do really have a source of quick cash if we need it.

Good thing that you have the $10K. If that represents 7 months then you probably don't have to worry too much about munis to avoid taxes. This is money you don't want to have to worry about so the only thing that you can do is just stage it out a bit with some longer term CDs that if you had to break, it wouldn't kill you. Some credit unions are especially good about not penalizing you too much. Don't know if you have a residence but another "emergency fund" that you can layer on top is a HELOC that you keep the balance at zero with. You can get these as low as 2.75-3.00%. HELOCs improperly used are a nightmare but if you are responsible, you could take your $10K and put it in a bit longer CD and if things go to hell you can draw on the Line. If you have any previous problems with debt, don't do this.

I don't like using debt, but for emergencies, it can provide extreme liquidity. Better just to have the cash but I like to think of HELOCs used the right way as an insurance policy. Again, you have to be responsible but borrowing money at less than 3% and having it be tax deductible can get you out of a jam if you have locked your money up into a 1 or 2 year instrument. Either way, interest rates are awful and you aren't much better off than having it under the figurative mattress.

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