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UGATiger26
Georgia Fan
Athens, GA
Member since Dec 2009
7441 posts

Best strategy for emergency fund savings?
My wife and I have finished saving a solid 4-6 month emergency fund (about $15,000). It's currently sitting in a savings account.

Any recommendations on where might be a better place to keep it while we do not need it? We want it to be fairly accessible, but would probably not need it immediately, as we have a pretty good cushion in our checking and regular savings.



Delacroix
LSU Fan
Member since Oct 2008
3881 posts

re: Best strategy for emergency fund savings?
Find a high yield online savings account. I use Capital One 360, it has a 0.75% rate. However, there are other online accounts that can offer over 1%.


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LSUengineer'12
LSU Fan
The Best Side
Member since Dec 2011
1842 posts

re: Best strategy for emergency fund savings?
Money market account, possibly?


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Croacka
Chicago Cubs Fan
Denham Springs
Member since Dec 2008
60992 posts

re: Best strategy for emergency fund savings?
You already maxing a roth?

I would put it in there. It's called an emergency fund for a reason. Best scenario is you'll never touch it again.

If you're saving for a house or other purchase, I'd still consider it, but it's less advantageous.


Hawkeye95
LSU Fan
Member since Dec 2013
20293 posts

re: Best strategy for emergency fund savings?
you could always put it in a roth.


TigerDeBaiter
LSU Fan
Member since Dec 2010
7866 posts

re: Best strategy for emergency fund savings?
LINK

I would just park it in one of the above options. It's not much, but is better than nothing IMO. I don't like the Roth IRA advice that I'm sure is about to be posted. Sure you can withdraw the principal, but you only get 60 days to replace it and then you've wasted that opportunity. In a true emergency I want access to the money that day too. Getting it out of a Roth would probably take at least a week or so. Not sure, never done it.


TigerDeBaiter
LSU Fan
Member since Dec 2010
7866 posts

re: Best strategy for emergency fund savings?
quote:

you could always put it in a roth.




Called it.


Croacka
Chicago Cubs Fan
Denham Springs
Member since Dec 2008
60992 posts

re: Best strategy for emergency fund savings?
I can probably counter point most any point you could make about not putting it into a roth


LSUengineer'12
LSU Fan
The Best Side
Member since Dec 2011
1842 posts

re: Best strategy for emergency fund savings?
Just elect to go with a super conservative fund, or what? Last thing you would want is to need the money in a down market..


Croacka
Chicago Cubs Fan
Denham Springs
Member since Dec 2008
60992 posts

re: Best strategy for emergency fund savings?
Definitely, and you could always rebalance if you have sufficient growth

I assume everyone had a credit card, at least for emergencies, so same day liquidity should rarely be a concern.


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12
Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46825 posts

re: Best strategy for emergency fund savings?
quote:

Sure you can withdraw the principal, but you only get 60 days to replace it and then you've wasted that opportunity.


One exception to this is the fact that you can replace the same year contributions all the way to April 15.


And as for the mentality in general, about a wasted opportunity: it is only true if you would otherwise be maxing out your Roth even without a plan to putting your emergency fund into it, which doesn't apply to the vast majority of investors.

If you aren't maxxing out your Roth already, then the only opportunity wasted is that of tax free growth of capital.

As for withdrawal: it all depends on what you put it into and what the vendor offers. I can get my money in a single business day. Also, no one said you had to put a 100% of it in an investment. When you realistically should have at least 20k in a fund, and often times more, I personally can't think of an emergency that would demand that much within a week.

Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.


Shadowlink
LSU Fan
The Shadows
Member since Apr 2014
1335 posts

re: Best strategy for emergency fund savings?
quote:

Getting it out of a Roth would probably take at least a week or so. Not sure, never done it.
Just did this. To sell the stock I had took 3 business days to settle in my account. To transfer from Fidelity to Capital One took another 3 business days. A week is right.


Hawkeye95
LSU Fan
Member since Dec 2013
20293 posts

re: Best strategy for emergency fund savings?
quote:

And as for the mentality in general, about a wasted opportunity: it is only true if you would otherwise be maxing out your Roth even without a plan to putting your emergency fund into it, which doesn't apply to the vast majority of investors.


Right, and its an emergency. Putting it in a roth raises the bar for an emergency from oh well we would like to go to bermuda to oh i lost my job.

quote:

Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.


always.


Salmon
USA Fan
On the trails
Member since Feb 2008
68080 posts

re: Best strategy for emergency fund savings?
quote:

Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.


this

I keep $5k in a money market account for common emergencies like AC going out, car repairs, minor medical bills, etc

I'll use my roth if I ever have a serious emergency like losing my job or serious medical bills
This post was edited on 4/30 at 10:49 am


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Gorilla Ball
LSU Fan
Gonzales, LA.
Member since Feb 2006
6554 posts

re: Best strategy for emergency fund savings?
if you would put into a roth and pull the monies out aren't you subject to penalties? my emergency fund is just in my savings account that the apr is so small its not worrying about. but if I have an emergency its there.


Hawkeye95
LSU Fan
Member since Dec 2013
20293 posts

re: Best strategy for emergency fund savings?
quote:

if you would put into a roth and pull the monies out aren't you subject to penalties?

you can take the principle out without penalties.


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10
Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46825 posts

re: Best strategy for emergency fund savings?
To an extent.

It is my belief that you only want to be conservative initially. While I would never put all of my emergency fund in a super highly volatile asset or single sector (except MAYBE consumer staples), I see no problem with building towards a high stock exposure.

Why? What about the risk of taking money out in a downturn?

It is only a risk if you take a all of your emergency fund money, invest it at once, and the market goes down.

Remember, your control is a savings account which currently earns almost nothing, so ANYTHING you gain compared to that is lagniappe.

Let's say your emergency fund is in the S&P 500, and it earns 8.0% per year for 5 years. In year six, a massive down turn happens and you lost your job requiring you to pull cash out when the value of the market is down 40% from where it was.

YOU DID NOT LOSE MONEY! In fact, you probably made 5+% compared to having it in a savings account.

So you see, being conservative in an emergency fund is only really relevant in the first couple of years of the transition to it. Especially given the peanuts that savings accounts currently play.


Hawkeye95
LSU Fan
Member since Dec 2013
20293 posts

re: Best strategy for emergency fund savings?
quote:



It is my belief that you only want to be conservative initially. While I would never put all of my emergency fund in a super highly volatile asset or single sector (except MAYBE consumer staples), I see no problem with building towards a high stock exposure.

Why? What about the risk of taking money out in a downturn?

It is only a risk if you take a all of your emergency fund money, invest it at once, and the market goes down.

Remember, your control is a savings account which currently earns almost nothing, so ANYTHING you gain compared to that is lagniappe.

Let's say your emergency fund is in the S&P 500, and it earns 8.0% per year for 5 years. In year six, a massive down turn happens and you lost your job requiring you to pull cash out when the value of the market is down 40% from where it was.

YOU DID NOT LOSE MONEY! In fact, you probably made 5+% compared to having it in a savings account.

So you see, being conservative in an emergency fund is only really relevant in the first couple of years of the transition to it. Especially given the peanuts that savings accounts currently play.

not to mention you could put in other types of assets (bonds) that are less volatile if this is a real concern but offer a greater yield than MM account.


Teddy Ruxpin
LSU Fan
TX
Member since Oct 2006
33693 posts

re: Best strategy for emergency fund savings?
Remember when MMs paid 6% or whatever now unfathomable number?

Those were the days, I never got to enjoy that.
This post was edited on 4/30 at 10:57 am


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46825 posts

re: Best strategy for emergency fund savings?
I use to recommend Vanguard's STAR, but I've converted due to others here and recommend their Wellesley Income fund for emergency purposes.

60% bonds, 40% large cap value.


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