Where do you keep your emergency fund?
February 25, 2012 2:17 PM   Subscribe

Where do you keep your emergency fund? All in a savings account, or do you put some of it in CDs or other investments?

I have six months' expenses set aside as an emergency fund. All of this money is in a savings account and earning very little interest. Now, the idea behind an emergency fund is to make sure it's there when you need it to cover unexpected expenses, so I'm inclined to leave it all in the savings account. However, I wonder what other people do with their emergency funds. Do you try to earn a little more interest by putting part of it in CDs or other investments? If so, what kind of strategy do you use? That is, do you do something like keep x% in savings, y% in short-term CDs, and z% in higher-risk investments? Thanks.
posted by crLLC to Work & Money (17 answers total) 22 users marked this as a favorite
Savings account. The amount of interest you can earn on a CD these days doesn't amount to enough dollars to make the reduced acceibility worth it to me.
posted by Ery at 2:19 PM on February 25, 2012 [2 favorites]

If you do want to invest in CDs, I'd suggest a CD ladder to ensure that the money is there if you need it for living expenses. (Obviously, rates aren't as high now as described in the linked article, but the principle is the same.)
posted by decathecting at 2:21 PM on February 25, 2012 [1 favorite]

I just opened a .9%APY account with American Express for exactly this purpose. .9% is competitive with the interest most CDs are earning these days, and the money will be available to you when you need it without any early withdraw penalty.
posted by phunniemee at 2:22 PM on February 25, 2012

I have a two month emergency fund. My dad has a safe. That's where I keep mine.
posted by holdkris99 at 2:34 PM on February 25, 2012

In my savings account. If it's truly an emergency, I may not have the time or the presence of mind to figure out where something is/how to get it out and lose money to withdrawal penalties.

Farther out savings, sure, CDs are great. But living expenses emergency fund? Needs to be accessible, above all.
posted by fiercecupcake at 2:47 PM on February 25, 2012 [1 favorite]

I keep about 90% of my emergency fund in tax-free municipal bonds and about 10% in cash (in a high interest savings account). Although I understand the rationale behind lower-risk investments, I think most of the scenarios where the difference would be pronounced are too apocalyptic to consider. In other words, I don't plan my emergency fund to survive 100% of possible eventualities - maybe only 99%.
posted by saeculorum at 2:54 PM on February 25, 2012

Until two days ago I had it all in my checking account, but then I opened an American Express savings account just for keeping my emergency fund. Actually, I'm probably going to move a large portion of my medical fund into there as well. I keep a separate pool of money set aside for my maximum out of pocket medical expenses. In all honesty this should go in an HSA of some sort but I haven't gotten around to it yet.
posted by zrail at 2:54 PM on February 25, 2012

I keep mine in a money market account at the same institution where I have my roth IRA and my 403b. I can write 3 checks a month, which I hardly ever do, in case we have an emergency.
posted by S'Tella Fabula at 4:06 PM on February 25, 2012

Ally bank has an 11 month no penalty CD that will pay a bit of interest and if you have to cash out the CD before 11 months is up, no harm, no foul, no penalty.

Wells Fargo has a promotional deal - open a Way 2 Save savings account with $500 and get 3% (!!!) for the first year.

Ibonds might be good if you don't need your money within the next year, they're paying a few percent.

The Lord Abbett Short Duration Income Fund might also be interesting to you.

Any of these might or might not still be current, I don't know. Do your own research, this is not investment advice, etc etc.
posted by thrasher at 6:45 PM on February 25, 2012

...and keep in mind if you're keeping your money in cash you are actually losing money with the rate of inflation.
posted by thrasher at 6:47 PM on February 25, 2012

In a money market, so I can get it easily if I need to. It's not a great investment, but it's not losing money and I keep my emergency fund as small as I sensibly can.
posted by The corpse in the library at 8:46 PM on February 25, 2012

I keep it in physical cash, gold, diamonds, and a Swiss watch, all in my present possession, not behind any lock I don't have a key to.

I'm probably planning for a different set of emergencies than most posters here, but the guideline of 6 months expenses still applies.
posted by Protocols of the Elders of Sockpuppetry at 8:53 PM on February 25, 2012

I'm only 23 and just started working last year after graduation, so I also have a higher risk appetite.

I have 80% of my emergency funds / cash savings are invested in individual equities in a brokerage account. Within that 80%, two discrete equities, combined, comprise 50% of the total portfolio.

The other 20% of my emergency fund is held as cash in a checkings account.
posted by 6spd at 11:29 PM on February 25, 2012

In all honesty this should go in an HSA of some sort but I haven't gotten around to it yet.
posted by zrail at 2:54 PM on February 25
Hey so this is a bit of a derail, but HSA contributions are pre-tax (or at least deductible). Unless you can beat your tax rate in interest (hint: you can't), you really should get on that.

The current inflation rate is somewhere between very low and negative, so a normal savings account isn't the worst idea ever. The thing about emergency money is that you want it to be available right now, or at least enough of it to get you access to the rest of it. I don't personally like the idea of having to wait for my broker to liquidate whatever cash-equivalent assets I've got in order to pay, say, a judge. :)
posted by TheNewWazoo at 3:40 AM on February 26, 2012

This depends somewhat one your access to credit. If you have access to a decent credit card limit that you don't use regularly, then you can keep the emergency money in a non-immediate access account with a higher rate of interest, and deal with emergencies on a credit card, and then sort out withdrawing the money to pay off the card after the emergency. This, of course, is dependent on what sort of emergencies you are talking about: it is fine for the "need to pay for a plane ticket for a funeral"/"need to replace the boiler now" sort of emergencies, less so for things that shake up your entire personal financial structure.
posted by Jabberwocky at 4:14 AM on February 26, 2012

A couple places, in order of liquidity:

* a hidden 20 bill in the wallet for really, truly dire right-now emergencies.

* available credit on my cards, which really help out on unplanned major expenses. Like changing jobs -- CC's give me a free loan to cover short gaps in income.

* a few months in savings, typically. No, the rates aren't good but nothing is. At some point I'll probably look at CDs like Ally's No Penalty CD, but the differential over savings isn't worth the effort for me at this particular moment.

* A Roth IRA, who's contributions I can take out anytime without penalty. The IRA is invested in a target date fund for simplicity. Yes the value shifts but it's primary purpose is retirement and it's a long ways down the emergency fund chain.

At this point it's about 15 percent checking, 18 percent savings and 66 percent IRA, but this is unusual since I need more cash on hand for an elderly parent and a cross-country move to a higher paying job.

A few other misc sources of money:

* Vacation time. I target accruing around the maximum an employer will pay out by policy before really scheduling vacations. This makes job loss and job change easier to cope with in some circumstances. It also means I haven't had a decent vacation in a while, and won't get one for a while longer.

* HSA. It's really not a big, big deal if you don't have an HSA, since medical expenses over 7.5 percent of AGI are deductions (maybe subject to income limits, IANA tax planner). It's actually a terrible place to invest, with the fees they charge. But since it doesn't go away from year to year, it's usable for emergency savings.

* Used tangible assets. Expensive and easily shipped used goods like video games, books and DVDs could be considered a form of savings I guess. The car might technically fall under this role as well I guess.
posted by pwnguin at 6:23 PM on February 26, 2012

We just use a rewards checking account for a good chunk. It takes discipline to maintain X as a balance, but for 3.25%, we make it happen.

Nthing Roth IRA as that will be our next move. We also keep a little in cash.
posted by getawaysticks at 6:30 AM on February 28, 2012

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