The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: live4soccer7 on January 25, 2018, 03:30:48 PM
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I currently have an emergency fund of 11k and it is held at Ally bank with an APY of 1.35%, which isn't bad considering where it is, but I'm wondering on some other options and any recommendations? It literally just sits there and I haven't touched it for years. Obviously, it is for an emergency, but I'm wondering what would be a better option for it?
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I just redid my emergency. I put 3 months in cash and another 9 months in tax free muni fund. Decent growth and you won't get hit with many taxes if you need it. More risk than other options, but I can live with it.
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Can you elaborate more on the "muni fund"? Thanks.
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Insight card - 5% on $5,000. If you have a SO, you can easily do 2 accounts. More info here: https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/
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Can you elaborate more on the "muni fund"? Thanks.
FTABX and FHIGX
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My discover bank and American express bank savings accounts beat the interest rate you showed from Ally. However, I have most of my emergency fund in two Certificates from Navy Federal Credit Union
they offer a 3%APY for 12 months but the max is $3000
The other one is 2.5%APY for 18 months with a $50000 maximum (the offer is for 2.25%APY but I receive an additional .25% as a bonus due to the length of time I've been a member)
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I use series I Bonds, but you have to get a year "ahead" since you can't redeem them until you've held them for a year.
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I use series I Bonds, but you have to get a year "ahead" since you can't redeem them until you've held them for a year.
You also lose 3 months interest if you redeem them in the first 5 years. Many CDs have worse rates and penalties, though.
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I simply use a Home Equity Line of Credit (untapped / available if needed) for our emergency fund. That way the dollars are always within reach when needed, and I don't have to worry about hard earned cash sitting idle.
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I currently have an emergency fund of 11k and it is held at Ally bank with an APY of 1.35%, which isn't bad considering where it is, but I'm wondering on some other options and any recommendations? It literally just sits there and I haven't touched it for years. Obviously, it is for an emergency, but I'm wondering what would be a better option for it?
I've considered either doubling my emergency funds and putting it into taxable investments (idea being, if you want 11k available, figure that you might lose 50% and so make it 22k of investments).
Or doing something similar with 2x the funds and a more stable 60/40ish investment.
I should talk with my wife about that, actually. We also have our emergency funds at Ally and like you probably will never touch them. We also have access to 50k+ of Roth contributions if we really needed to get money.
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Vanguard Prime Money market current interest is 1.45%. No duration, no early withdrawal penalty. Min. $3k.
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Thanks for everyone's input! Feel free to keep adding in more. It's interesting to see everyone's perspective. I haven't quite decided what I'm going to do yet. It's a tough choice.
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Being the king of searching for the best rates, I'll shoot some input on accounts that pay more than Ally (where I do have a hysa and a CD).
Redneck Bank: 1.5% up to $35k. They put a limit on transfers for a few months of $1000 and then seem to limit to $5k a day. But otherwise, easy to deal with and the site works great.
Ablebanking: 1.7% money market account. $250 minimum and no max. I just opened this. They are very slow to do their confirmations and such which I attribute to being careful, verifying and being security focused. I'm awaiting my first transfer over at which time I'll drain most of both Ally and Redneck.
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Barclays Online Savings.
Currently offers 1.5% APY.
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I currently have an emergency fund of 11k and it is held at Ally bank with an APY of 1.35%, which isn't bad considering where it is, but I'm wondering on some other options and any recommendations? It literally just sits there and I haven't touched it for years. Obviously, it is for an emergency, but I'm wondering what would be a better option for it?
I've considered either doubling my emergency funds and putting it into taxable investments (idea being, if you want 11k available, figure that you might lose 50% and so make it 22k of investments).
Or doing something similar with 2x the funds and a more stable 60/40ish investment.
I should talk with my wife about that, actually. We also have our emergency funds at Ally and like you probably will never touch them. We also have access to 50k+ of Roth contributions if we really needed to get money.
Before I knew to increase my 401(k) witholdings to the maximum, I invested in a taxable account. When banks were failing in 2007 or 2008 we opened a 5-year high interest CD with our emergency fund. Once the CD came up for renewal, the interest rates offered were awful. The taxable account ended up doing well and now sits at 2 year's expenses, so we just rolled it in. Meanwhile we've been able to cash flow the maximum into Roth IRAs and a 401(k), so we haven't had to tap the taxable account. My job is in Mainstreet not Wallstreet so I don't expect my emergencies to be correlated with the stock market. Relying on the stock account for emergencies has served us well.
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I have kept mine in Consumers Credit Union checking for years now, been very happy. If you're willing to use their CC for 1 K/month in spend (it's a decent cash back bonus card, but not fantastic, hence I use it just to hit the tier), it's a 4.6% return on up to 20 K. Even without the CC, they offer 3.1% back on up to 10 K. I don't think there is a better return out there for a checking or savings, but yeah there are a few hoops you have to hit which I'm able to do easily. Happy to answer any questions.
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I have kept mine in Consumers Credit Union checking for years now, been very happy. If you're willing to use their CC for 1 K/month in spend (it's a decent cash back bonus card, but not fantastic, hence I use it just to hit the tier), it's a 4.6% return on up to 20 K. Even without the CC, they offer 3.1% back on up to 10 K. I don't think there is a better return out there for a checking or savings, but yeah there are a few hoops you have to hit which I'm able to do easily. Happy to answer any questions.
I got questions :-) The credit card part of this is looking pretty good (at least, not much worse than cash back cards I already have but the extra interest definitely pulls ahead if it's worth the effort). But:
Any reservations using this as a primary or even only checking account? Restrictions or difficulties? I'd rather have all my cash in here, instead of stupid little amounts scattered around, earning less.
What method do you use for the 12 debit transactions per month?
Any other comments I wouldn't learn from doctorofcredit?
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I got questions :-) The credit card part of this is looking pretty good (at least, not much worse than cash back cards I already have but the extra interest definitely pulls ahead if it's worth the effort). But:
Any reservations using this as a primary or even only checking account? Restrictions or difficulties? I'd rather have all my cash in here, instead of stupid little amounts scattered around, earning less.
What method do you use for the 12 debit transactions per month?
Any other comments I wouldn't learn from doctorofcredit?
I have been very happy with this as my primary checking account for over 3 years now. I still keep my chase checking account in case I need to make a physical check deposit, and to have a physical bank just in case, but I never keep much in this account. If you don't need to physically deposit checks, I'd say you could skip this altogether (I see that Consumers offers mobile deposit, but I have not tried it out -- their technology/interface is a bit outdated from my experience). I once had an issue overseas with accessing money, so make sure to inform them whenever you travel out of the country -- nice thing is they refund all ATM fees (part of hitting the bonus tier), really great credit union imo. For the 12 transactions, I fill up my Amazon personal gift card balance (can do 50 cent transactions for a total of $6/month). Takes a few minutes each month to do this and it fulfills the debit transactions. Regarding the 1 K in CC spend, I use this on a category where I can only get 2% on my other CC, so it's not too much of a loss there (1% vs 2%). I'd never use it on a category like grocery where you can get 6% with Amex for example.
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Is there any reason one shouldn't keep their emergency fund in a taxable vanguard account, investing in VTSAX?
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Is there any reason one shouldn't keep their emergency fund in a taxable vanguard account, investing in VTSAX?
Yeah, I thought MMM himself said something along the lines of invest away normally in a taxable account and if an emergency arises, pay with a credit card and then cash something in to pay it off when it comes due.
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Indeed:
http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/
My situation is that I work for myself (own a small business), and only take dividends every 3 months, so I like to keep at least a few months of expenses in cash, hence why I use a high yield checking account. I suppose if I were paid every 2 weeks like most people, I'd feel safer not keeping this much in cash. In any case, you have to keep some cash obviously, and a high yield checking is the best solution imo.
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Is there any reason one shouldn't keep their emergency fund in a taxable vanguard account, investing in VTSAX?
You may be forced to sell low. You may have less months funds available in a downturn which is correlated with unemployment emergency risk. Which could lead to revolving consumer debt and retirement account penalties when you tap money.
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You may be forced to sell low.
That is what bonds are for.
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You may be forced to sell low.
That is what bonds are for.
Question was about VTSAX. Sure, you could reallocate across accounts, but you'd still be selling low if you stick to your AA.
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Question was about VTSAX. Sure, you could reallocate across accounts, but you'd still be selling low if you stick to your AA.
Ah, I see. No, this is a horrible idea. The whole point of having bonds in our portfolios is to be able to draw on them when necessary (i.e. when stocks are low). I'd say this also applies to an emergency situation.
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Is it a good idea to use BND or VBTLX as an emergency fund? Just use credit cards if you need money urgently, sell bond funds and pay off credit card balances.
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CC is fine as a floater (preferably with a good cash bonus!), but obviously you're going to need to pay off the card, so that's where selling the bonds would come in (if you prefer keeping most of your funds invested, that is).
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I move my emergency fund around to hit savings account bonuses. You can usually get $800/year on a $15k emergency fund.
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I have been very happy with this as my primary checking account for over 3 years now. I still keep my chase checking account in case I need to make a physical check deposit, and to have a physical bank just in case, but I never keep much in this account. If you don't need to physically deposit checks, I'd say you could skip this altogether (I see that Consumers offers mobile deposit, but I have not tried it out -- their technology/interface is a bit outdated from my experience). I once had an issue overseas with accessing money, so make sure to inform them whenever you travel out of the country -- nice thing is they refund all ATM fees (part of hitting the bonus tier), really great credit union imo. For the 12 transactions, I fill up my Amazon personal gift card balance (can do 50 cent transactions for a total of $6/month). Takes a few minutes each month to do this and it fulfills the debit transactions. Regarding the 1 K in CC spend, I use this on a category where I can only get 2% on my other CC, so it's not too much of a loss there (1% vs 2%). I'd never use it on a category like grocery where you can get 6% with Amex for example.
Great thanks. Is there a day of the month when it registers your account value, so I could transfer funds out the day after? Or is it an average? Either would be fine, but it would be good to know which. All of this would be no problem for me except the debit transactions, because I would have no use for those especially with the CC (which is the whole point). If I go for it I will replace my 6% Amex :). The $95 fee drags it down a lot, and as a longtime MMMer I don't have that much recurring spend. The CCU gives $200 more than any cashback combination I found for my level of spending, now I need to decide if it is worth 12 internet debit transactions per month.
CC is fine as a floater (preferably with a good cash bonus!), but obviously you're going to need to pay off the card, so that's where selling the bonds would come in (if you prefer keeping most of your funds invested, that is).
Exactly. Earlier this month we had an issue where we had $12,000 of CC spend due (side hustles, wife's tuition, routine bills...) on top of me moving a bunch of money to Vanguard. I only target $5,000 in my 0% interest checking! So there were a few tense days but everything sequenced out OK. But now I want a larger reserve, and I don't want $10,000+ at 0% interest, and it should be in checking to work.
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I found for my level of spending, now I need to decide if it is worth 12 internet debit transactions per month.
If you don't use Amazon, I know some people just load up a reloadable card like an Amex Serve to get the debit transactions in. I'm sure there are a lot of creative ways to knock this out within a few minutes, I just find amazon the easiest.
Great thanks. Is there a day of the month when it registers your account value, so I could transfer funds out the day after?
That's a good question, I'm not sure exactly how they calculate the account value, or when it's done. I generally keep more than 20 K in my account so I haven't really looked into this, but it's a good question to run by them.
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I move my emergency fund around to hit savings account bonuses. You can usually get $800/year on a $15k emergency fund.
This! I actually made a couple thousand last year on holding only roughly 5K in emergency cash. It is one hell of a return.
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I have been moving mine to FBKWX. I've got about half the emergency fund in it now and plan to move 90% over in the next year or two.
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I move my emergency fund around to hit savings account bonuses. You can usually get $800/year on a $15k emergency fund.
This! I actually made a couple thousand last year on holding only roughly 5K in emergency cash. It is one hell of a return.
Interesting, thats a massive return of 40%! How did you do it? Is it sustainable? How much of your time involved?
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The purpose of the EF (in general) isn't to maximize return. It's to avoid excessive fees/interest if SHTF. Perhaps you might want to reconsider the size of your EF. For example, maybe $5k is enough and you can put the rest in VTSAX or something similar. You will be capturing market gains with $6k more.
There are some credit unions that have 5% savings accounts, but they are usually regional and must be a local resident.
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I personally keep a few months worth of expenses in a money market account which earns 1.5% a year. Then I invest the rest in VTSAX and VBTLX until I have 6-12 months of expenses. In 2017 I made ~$2500 compared to just $300 in a money market account.
Portfoliovisualizer says these two funds worst year was a 16% drop. I can stomach losing $3,200 out of a $20,000 portfolio to risk higher gains long term. Most of the smaller emergencies I run into I can cash flow anyways.
50/50 VTSAX/VBTLX
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The purpose of the EF (in general) isn't to maximize return. It's to avoid excessive fees/interest if SHTF.
Why not do both? Get a decent return AND avoid the excessive fees for when SHTF. I don't think the two are mutually exclusive.
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I never really got emergency funds. There are so many possible objectives for one, and for most the likely outcome is less money than an investment. I'm not looking for an emergency fund, I want a high yield checking account. But you could call it an EF.
This! I actually made a couple thousand last year on holding only roughly 5K in emergency cash. It is one hell of a return.
That's not an EF, it's a side hustle. But you could call it an EF.
I have been moving mine to FBKWX. I've got about half the emergency fund in it now and plan to move 90% over in the next year or two.
That's not an EF, it's a garden-variety investment. But you could call it an EF.
I personally keep a few months worth of expenses in a money market account which earns 1.5% a year.
That's an EF, but I never saw the point, when the alternatives are a checking account, a side hustle, or general investing.
I like the Consumers Credit Union checking at 4.59%. It will return $360/yr more than my current 0% checking, Amex Blue Cash Preferred, and Fidelity 2% card. The $30/month will be worth the time spent with the $12,000 I plan, and the yield is higher than my plans for bonds on the next $8,000. I'll work that in over the next couple months. We are doing leisurely quarterly CC churning on top of that, and I'd also like to start quarterly account churning. After that is investments.
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This! I actually made a couple thousand last year on holding only roughly 5K in emergency cash. It is one hell of a return.
That's not an EF, it's a side hustle. But you could call it an EF.
Technically it's both. The cash is readily available and sits in interest bearing accounts. But rather earning 2% or less I move it around to different banks cashing in on the sign-up bonuses.
I move my emergency fund around to hit savings account bonuses. You can usually get $800/year on a $15k emergency fund.
This! I actually made a couple thousand last year on holding only roughly 5K in emergency cash. It is one hell of a return.
Interesting, thats a massive return of 40%! How did you do it? Is it sustainable? How much of your time involved?
Not much time involved. Maybe 15 minutes per account, sometimes more, sometimes less. You do have to be organized (spreadsheets, etc.). There is a thread for the discussion that's a couple years old. You can get bonuses annually on many banks, but for the level I did it at last year, that's likely not sustainable. But even a mere $500 annually, for the money I have sitting in my emergency account, it's a fantastic return.
https://forum.mrmoneymustache.com/share-your-badassity/bank-account-churning-how-to-make-$1600-in-a-year-by-being-organized/ (https://forum.mrmoneymustache.com/share-your-badassity/bank-account-churning-how-to-make-$1600-in-a-year-by-being-organized/)
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Another great option is just open an Alliant Credit Union account, and make sure to get their 3% cash back card. I put most of my spending on this card (non-grocery, and non-Consumers CU spend I have to tier out). The bonuses I get I just put in their savings account which is now at 1.45%, very solid. Yeah, I belong to 2 credit unions -- just love the benefits.
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Sometimes immediate access to your funds or cash is essential. Just in the past two years, I've had family emergencies and Florida hurricane situations ...
OP - I'm another fan of Credit Unions - Mid Florida and Navy Federal Union both have good offers, great products, loans and credit cards incl., great service as well as very user-friendly online banking.
1. I keep a bit of cash at Mid Florida Credit Union - checking acct min $1K @ 1% up to $10K, plus they offer 2% up to $4K in their Holiday Club acct.
2. My EF is at another local credit union - Navy Federal CU.
CD 1 - 12 months - 3% up to $3K
CD 2 - 2.25% - the beauty is min $50 and max of $50K, but you can continue to add monies at any time - a sweet deal - oh, and that one is 15 months.
I have a few thousand in a travel fund at Cap One, their sav acct is 1% with no min (their MM is 1.30%-min $10K) but they are way slow in processing funds in and out - so not a good fit for the type of emergencies we may encounter here in Florida.
What I like is the debit card I have for their checking account which has no foreign exchange fees and it works fine in Germany and it appears their credit cards have a nice bonus as well - looking into that.
I wouldn't cry over losing money with the early WD penalty - if it is that kind of an emergency - who cares?
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The purpose of the EF (in general) isn't to maximize return. It's to avoid excessive fees/interest if SHTF.
The purpose of an EF is to provide quick access to cash without having to sell at a bad time, without affectingyour AA, and without cap gains, taxes, fees, etc. For these advantages, you give up some return.
If you want to carry more risk and invest your EF in the market, you can, but then it's not an EF any more.
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I simply use a Home Equity Line of Credit (untapped / available if needed) for our emergency fund. That way the dollars are always within reach when needed, and I don't have to worry about hard earned cash sitting idle.
That backfired for a lot of people in 2008. During the credit crunch many banks, even big banks, froze existing HELOCs. Even people with amazing credit who never missed payments had their lines frozen.
http://money.cnn.com/2008/04/18/real_estate/heloc_freeze.moneymag/index.htm?postversion=2008042104
https://www.wsj.com/articles/SB121077622984191953
https://www.cbsnews.com/news/lenders-freezing-some-home-equity-loans/
In 2008 credit freezes primarily applied to HELOCs, but the downside to any form of revolving credit is that it's available to you at the discretion of the lender. They can turn it off.
I keep 1 month worth of expenses in a savings account that I can get to quick. For the rest of my EF, I use a short term bond fund. Sure, in a year like 2008 it might drop 5%. That's not a big deal in exchange for the higher rate the rest of the time.
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Another option not mentioned yet - Series I savings bonds (I bonds). Your EF will keep up with inflation, at least, be state tax-free, and federal taxes are deferred until withdrawal (or even eliminated altogether if used for higher education). Currently paying 2.58% (0.1% fixed rate + inflation). Risk free, as well.
You will probably want to ladder it a bit, since the funds are not available for 1 year, and then you will pay 6 months' interest penalty if redeemed within 5 years.
I've been moving my EF over to I bonds over the past few years, which really is just having my EF as part of the fixed income portion of my overall portfolio.
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I keep on portion of my emergency fund in a Capital One 360 account which currently pays 1.4%
I keep another portion with Betterment in an account named “safety net.” This account is 41% stocks/ 59% bonds, based on Betterment’s recommendation. This account earned 4.3% last year.
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@dustinst22 I am also interested in CCU. Could I use their credit card to pay my other credit cards? I hardly ever use credit, so spending $1k a month would only be valuable to me if I could use it to pay my other balances that I pay off every month anyway, as well as my rent (which I currently pay in cash).
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emergency funds are for people without money. if you are a mustachian you likely have plenty of liquid assets available that you don't need a bucket of $$$ not making interest. I am 100% equities and my brokerage account is also 100% equities. I do have some cash in the bank just enough to cover the mortgage and maybe a month's of expenses, for convenience sake, but everything else is invested. Even if the market fell by 50% AND I had an emergency at the exact same time, I'd be fine. And the odds of that happening are much MUCH lower than the odds of losing out on extra growth by not being 100% invested.
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Lake Michigan credit Union.
Max checking.
3% on up to 15k.
Easy requirements.
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Ally is offering a 2.15% 30-month IRA CD.
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Ally is offering a 2.15% 30-month IRA CD.
And no-minimum balance Savings just went up to 1.45%! Boom
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I just transferred part of my emergency fund to Live Oak Bank ( https://www.liveoakbank.com/personal-banking/personal-savings/ ), they're paying 1.6% on a savings accounts and there's no gimmicks of minimum debit transactions or online logins to worry about. They're an online only bank but I'm familiar with them from my regular job as they are a lender that specializes in certain types of specialized real estate like breweries, veterinary clinics, bowling alleys, etc. The kind of properties that most regular banks aren't familiar with and don't want to lend on.
An emergency fund isn't an investment, it's insurance. Insurance costs money but it's there to provide protection and peace of mind. Keeping some amount of cash liquid and not invested will cost you money due to inflation and opportunity costs but for many people the peace of mind of knowing there's $5-10k of cash that can instantly be tapped in an emergency is worth forgoing the additional return. Stick it in a decent online savings account at least offsets most of the inflation loss.
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@dustinst22 I am also interested in CCU. Could I use their credit card to pay my other credit cards? I hardly ever use credit, so spending $1k a month would only be valuable to me if I could use it to pay my other balances that I pay off every month anyway, as well as my rent (which I currently pay in cash).
No, I don't think paying off other credit cards would be an option to hit the tier, as bonus credit cards dont allow it (essentially "manufactured spending").
That said, they still offer 3.1% up to 10 K with no credit card needed (still have other "hoops" you have to hit, though).
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Another option not mentioned yet - Series I savings bonds (I bonds). Your EF will keep up with inflation, at least, be state tax-free, and federal taxes are deferred until withdrawal (or even eliminated altogether if used for higher education). Currently paying 2.58% (0.1% fixed rate + inflation). Risk free, as well.
You will probably want to ladder it a bit, since the funds are not available for 1 year, and then you will pay 6 months' interest penalty if redeemed within 5 years.
I've been moving my EF over to I bonds over the past few years, which really is just having my EF as part of the fixed income portion of my overall portfolio.
Another Ibond investor here. I'm in the process of putting about 8 months of my emergency fund in them. Just slowly buying some every 3 months or so. I think of it as my extended emergency fund. I consider theseas part of my bond portfolio also.
The other 4 months is in ally.
These are massively simple. And im not losing value to inflation. Working for $1k on $15k investment just seems like too much work to me.
One small correction.... I think if you cash out before 5 years is complete thenyou actually lose thelast 3 months interest. Not 6.
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CIT Bank is marginally better at 1.55% (https://www.bankoncit.com/high-yield-savings/).
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Another option not mentioned yet - Series I savings bonds (I bonds). Your EF will keep up with inflation, at least, be state tax-free, and federal taxes are deferred until withdrawal (or even eliminated altogether if used for higher education). Currently paying 2.58% (0.1% fixed rate + inflation). Risk free, as well.
You will probably want to ladder it a bit, since the funds are not available for 1 year, and then you will pay 6 months' interest penalty if redeemed within 5 years.
I've been moving my EF over to I bonds over the past few years, which really is just having my EF as part of the fixed income portion of my overall portfolio.
Another Ibond investor here. I'm in the process of putting about 8 months of my emergency fund in them. Just slowly buying some every 3 months or so. I think of it as my extended emergency fund. I consider theseas part of my bond portfolio also.
The other 4 months is in ally.
These are massively simple. And im not losing value to inflation. Working for $1k on $15k investment just seems like too much work to me.
One small correction.... I think if you cash out before 5 years is complete thenyou actually lose thelast 3 months interest. Not 6.
Yeah, it is 3 and not 6.
I know I Bonds would be much more attractive to me if Washington had a state tax.
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I keep a third at Ally, a third in CDs (CD Ladder), and a third in US Savings Bonds. Savings Bonds are underrated probably because we've had such low interest rates and low inflation their yields have been decimated. With both increasing, savings bonds are looking more attractive.
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Insight card - 5% on $5,000. If you have a SO, you can easily do 2 accounts. More info here: https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/
+1 for this. It involves some upfront work to set up, but you can have multiple NetSpend/Insight accounts per person. Link in my signature for more information. If you do it make sure you read that article in full or PM me for how to avoid all fees!
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My checking account at a small local bank earns 2.25%, has no annual fee, offers ATM refunds nationwide, has free online bill pay, AND is FDIC insured. I keep less than 10k there. Some people aren't earning that on a CD, which is not liquid.
If the SHTF and I needed even more money, I have access to tens of thousands of dollars via credit cards, some with 2% cash back rewards. I could access these funds during the 3-5 days until the ACH transfer from my brokerage came through and pay it off the next month.
I also keep several hundred in cash in a hiding place, but that's mostly in the rare case I find a Craigslist bargain and must rush out the door!
If I'm physically incapacitated, I have short-term disability insurance through work.
If I'm physically dead, my dependents have life insurance.
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Posting to read later.
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Posting to read later.
When you are reading later, you should know that the insight card that has a 5% interest rate on up to 5K is no longer a thing.
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Money market mutual fund. I use Vanguard for investing, and their prime MM pays 1.98% today. I assume other fund companies are competitive, and it is convenient to have all my money in one place. I would trade 0.1-0.25% yield for convenience. Not sure if the interest rate increase from last week is fully incorporated. It increases when the Fed increases. Assuming rates increase 1% per year, this looks like a better choice than CD's for the time being.
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I keep one year's worth of expenses in cash and cash equivalents. One third goes into Ally Savings, another into a CD ladder, and the rest into I-Bonds. I do this to address the risks of cash like investments- namely interest rate changes and inflation. If the interest rate goes up, Ally's savings account pays more (currently 1.64% and raising), if it goes down then I have CDs out to 5 years that have locked in higher rates. If inflation goes up, my I-Bonds yield more, compensating somewhat for the loss of value. It's cash so I don't worry about deflation. Not a good investment but it helps me sleep at night and will probably form a chunk of my down payment when I eventually buy a house.
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Savings Bonds are not horrible either. Historically have had only 3 month min for interest and decent guaranteed rates until maturity.
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Money market mutual fund. I use Vanguard for investing, and their prime MM pays 1.98% today. I assume other fund companies are competitive, and it is convenient to have all my money in one place. I would trade 0.1-0.25% yield for convenience. Not sure if the interest rate increase from last week is fully incorporated. It increases when the Fed increases. Assuming rates increase 1% per year, this looks like a better choice than CD's for the time being.
I hadn't looked at that in awhile - thanks. I'm using Synchrony for an online savings account, but this is better, and since I have most $ in Vanguard already it is convenient. I think I'll move over all my Synchrony cash to Vanguard.
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I have an emergency fund at a local credit union. It makes almost nothing and we never touch it. I also have a "spending account" which doubles as a backup emergency fund in a Sallie Mae money market fund. That money is making 1.75%.
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Money market mutual fund. I use Vanguard for investing, and their prime MM pays 1.98% today. I assume other fund companies are competitive, and it is convenient to have all my money in one place. I would trade 0.1-0.25% yield for convenience. Not sure if the interest rate increase from last week is fully incorporated. It increases when the Fed increases. Assuming rates increase 1% per year, this looks like a better choice than CD's for the time being.
I hadn't looked at that in awhile - thanks. I'm using Synchrony for an online savings account, but this is better, and since I have most $ in Vanguard already it is convenient. I think I'll move over all my Synchrony cash to Vanguard.
Same, going to look into this as well. Newb question, where do you look up the current MM rate? Is it the SEC yield?
https://advisors.vanguard.com/web/c1/fas-investmentproducts/0066/overview
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where do you look up the current MM rate? Is it the SEC yield?
https://advisors.vanguard.com/web/c1/fas-investmentproducts/0066/overview
Yes, SEC yield. Be aware MM funds are not FDIC insured. They have never "broken the buck" or defaulted. There is a small added risk vs. a MM account at a bank. you get paid for it, though.
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Yes, SEC yield. Be aware MM funds are not FDIC insured. They have never "broken the buck" or defaulted. There is a small added risk vs. a MM account at a bank. you get paid for it, though.
But right now CIT Bank has an FDIC insured money market at 1.85% (https://bankoncit.com/money-market-accounts/). Why would I take the risk of it not being FDIC insured for an extra 0.19%?
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They have never "broken the buck" or defaulted.
This is factually incorrect. There are at least two MM funds that have 'broken the buck'. See: https://dealbook.nytimes.com/2008/09/17/money-market-fund-says-customers-could-lose-money/
Also, there are many others where the management companies have filled in holes (also noted in the article above), but in any bad scenario, one shouldn't rely upon that happening all the time.
Why would I take the risk of it not being FDIC insured for an extra 0.19%?
Agree, folks should beware that risk and return are related, see: https://www.cbsnews.com/news/lessons-from-schwabs-yieldplus-debacle/
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I use PurePoint for savings. 1.9% on 10k min
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The stock market.
Emergency funds are for people who don't have money. Not trying to sound ridiculous here, seriously think about it: If you are a mustachian, close to FI or at FI, you are not living paycheck to paycheck. If something happens and you need money, you can sell stock. Some say "well what if the stock has gone down then you sell at a loss". Yes, but does the market not go up more than it goes down? Would you not be at higher risk of missing out on growth than you would of selling at a loss? Of course you would. So play the odds, and if anything just double the size of the "emergency fund" so that if it does go down it will still be larger than whatever amount you set aside for emergencies. Also, when you sell at a loss you can tax-loss-harvest that so it's not a 100% loss, it's more like a 78% loss depending on your tax bracket.
If you have plenty of money do not worry about an "emergency fund". Just follow your stock/bond allocation. Obviously we need to have SOME cash in a checking account for simplicity sake, to pay the bills. We don't need to be selling stock every time a utility bill comes due. But if you are a mustachian you most likely do NOT need a large chunk of cash sitting idle.
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^I agree with this and consider the principle in my Roth IRA to be my long term emergency fund.
For being nimble in short term "emergencies" (which I consider normal expenditures, like when the water heater goes out) I keep a couple of thousand in savings which is only earning me 1%. Meh, money comes and goes from that account as I need it for things and then replenish it the next month. It's mostly for keeping my life at a level of simplicity that works for me, so the lower yield is a small price I pay for that simplicity.
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Yes, SEC yield. Be aware MM funds are not FDIC insured. They have never "broken the buck" or defaulted. There is a small added risk vs. a MM account at a bank. you get paid for it, though.
But right now CIT Bank has an FDIC insured money market at 1.85% (https://bankoncit.com/money-market-accounts/). Why would I take the risk of it not being FDIC insured for an extra 0.19%?
Same, I see little reason for the vanguard MM fund. It's currently (6/20) only 1.95 after fee, but my discover bank gives 1.65% in a basic FDIC insured savings account (and others are higher). A 12 month CD yields 2.25%!
So for 0.3% less than MM you get FDIC insurance, and can get 0.30% more for locking it up for 12 months. And 2.52% on an i-bond.
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The stock market.
Emergency funds are for people who don't have money. Not trying to sound ridiculous here, seriously think about it: If you are a mustachian, close to FI or at FI, you are not living paycheck to paycheck. If something happens and you need money, you can sell stock. Some say "well what if the stock has gone down then you sell at a loss". Yes, but does the market not go up more than it goes down? Would you not be at higher risk of missing out on growth than you would of selling at a loss? Of course you would. So play the odds, and if anything just double the size of the "emergency fund" so that if it does go down it will still be larger than whatever amount you set aside for emergencies. Also, when you sell at a loss you can tax-loss-harvest that so it's not a 100% loss, it's more like a 78% loss depending on your tax bracket.
If you have plenty of money do not worry about an "emergency fund". Just follow your stock/bond allocation. Obviously we need to have SOME cash in a checking account for simplicity sake, to pay the bills. We don't need to be selling stock every time a utility bill comes due. But if you are a mustachian you most likely do NOT need a large chunk of cash sitting idle.
My cash pile isn't really an emergency fund - it's cash. I want a small % in cash for immediate upcoming spend. I'm not going to sell stock every time I need $100 or $1000.
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Ally is currently at 1.65%, only 18 points below Vanguard's Prime Money Market Fund once you account for fees.
For those who keep funds in I-Bonds, where do you buy/hold these bonds? Do you just use TreasuryDirect?
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For those who keep funds in I-Bonds, where do you buy/hold these bonds? Do you just use TreasuryDirect?
Yes, that's your only choice. I have buys setup on the 15th of every month for the next 55 months.
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My cash pile isn't really an emergency fund - it's cash. I want a small % in cash for immediate upcoming spend. I'm not going to sell stock every time I need $100 or $1000.
exactly. You do need a good place to keep cash that has a decent return For this purpose, I still haven't found better than consumers credit union checking acc @ 4.6% up to 20 K after hoops.
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For those who keep funds in I-Bonds, where do you buy/hold these bonds? Do you just use TreasuryDirect?
Yeah, I do. Could do paper bonds purchased via tax refund, but I don't like to have a big refund and I didn't really want them titled jointly with my spouse, just seems like it could be a PITA for redeeming or something.
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My cash pile isn't really an emergency fund - it's cash. I want a small % in cash for immediate upcoming spend. I'm not going to sell stock every time I need $100 or $1000.
exactly. You do need a good place to keep cash that has a decent return For this purpose, I still haven't found better than consumers credit union checking acc @ 4.6% up to 20 K after hoops.
It looks like even without the monthly CC spend they offer ~3.05%. That's incredible, much higher than even the best 12 month CD rates at most banks.
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My cash pile isn't really an emergency fund - it's cash. I want a small % in cash for immediate upcoming spend. I'm not going to sell stock every time I need $100 or $1000.
exactly. You do need a good place to keep cash that has a decent return For this purpose, I still haven't found better than consumers credit union checking acc @ 4.6% up to 20 K after hoops.
It looks like even without the monthly CC spend they offer ~3.05%. That's incredible, much higher than even the best 12 month CD rates at most banks.
Yeah, I've used them for a few years now, no issues. They did lower their % from 5.1% a few years back, but no big deal. For the debit transactions, 50 cent amazon balance reload fills that requirement, takes like a minute. I use the cc for the full return and have found it worthwhile too. It is pretty insane this is a checking acc.
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It looks like Beam is a great place to earn a great interest rate (which you can do things to increase, starting around 2% and going up to 4%) AND it is FDIC-insured. If you decide to get on the waitlist, can you please use my link here? https://meetbeam.com/?r=CASH-Hklmi5Qaof
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It looks like Beam is a great place to earn a great interest rate (which you can do things to increase, starting around 2% and going up to 4%) AND it is FDIC-insured. If you decide to get on the waitlist, can you please use my link here? https://meetbeam.com/?r=CASH-Hklmi5Qaof
This does look cool. I just used your link. Thanks for sharing.
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It looks like Beam is a great place to earn a great interest rate (which you can do things to increase, starting around 2% and going up to 4%) AND it is FDIC-insured. If you decide to get on the waitlist, can you please use my link here? https://meetbeam.com/?r=CASH-Hklmi5Qaof
This does look cool. I just used your link. Thanks for sharing.
You are very welcome! Thanks for using my referral code/link. I hope they get the Android part up and running soon (since I am not an Apple/iOS user).
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My cash pile isn't really an emergency fund - it's cash. I want a small % in cash for immediate upcoming spend. I'm not going to sell stock every time I need $100 or $1000.
exactly. You do need a good place to keep cash that has a decent return For this purpose, I still haven't found better than consumers credit union checking acc @ 4.6% up to 20 K after hoops.
It looks like even without the monthly CC spend they offer ~3.05%. That's incredible, much higher than even the best 12 month CD rates at most banks.
Yeah, I've used them for a few years now, no issues. They did lower their % from 5.1% a few years back, but no big deal. For the debit transactions, 50 cent amazon balance reload fills that requirement, takes like a minute. I use the cc for the full return and have found it worthwhile too. It is pretty insane this is a checking acc.
Do you happen to have a referral/promo code? This looks like a great place to keep my money until Beam is up and running.
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Do you happen to have a referral/promo code? This looks like a great place to keep my money until Beam is up and running.
Nope, I haven't bothered checking if they have one. Guess I should, I have recommended them quite a bit.
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Yeah, I've used them for a few years now, no issues. They did lower their % from 5.1% a few years back, but no big deal. For the debit transactions, 50 cent amazon balance reload fills that requirement, takes like a minute. I use the cc for the full return and have found it worthwhile too. It is pretty insane this is a checking acc.
Do you pay the $6/month in Amazon debits from the interest the account generates, or do you transfer $6 from your "actual" checking account into the CCU account each month? A $6 transfer seems pointless but if you take the $6/month from the interest that reduces your yield by a substantial amount (varies depending on your principal obviously). Still better than any other saving accounts at other banks though.
For example, by my own math if I were to hold a balance of $15k with the lowest interest rate of 3.05%, the monthly $6 charges lower the yield to 2.77%. Obviously that $6 is used elsewhere (i.e. on Amazon purchases) but then I am basically skimming the yield from my savings account to pay for everyday consumption and not for EF type expenses. Granted, even the lower yield is still very good and would be even better if you meet the CC spending requirements (like you say you do), but I'm just curious how you approach this.
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Discover Bank pays 1.65% on online savings accounts and 2.25% on 1 yr CD's. You could ladder CD's so some $$ is always available.
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Correction to some previous info.
Yesterday, Vanguard Prime MM hit 1.99% SEC Yield, and that includes factoring in the expenses on the fund. Compounded yield makes it 2.01%. As of right now, that is listed as the current yield today.
On May 30th, the SEC yield was 1.90%, compounded 1.92%. It's been on the rise little by little.
It's rated a lower risk investment than bond funds, and certainly more so of a lower risk than stock funds.
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For example, by my own math if I were to hold a balance of $15k with the lowest interest rate of 3.05%, the monthly $6 charges lower the yield to 2.77%. Obviously that $6 is used elsewhere (i.e. on Amazon purchases) but then I am basically skimming the yield from my savings account to pay for everyday consumption and not for EF type expenses. Granted, even the lower yield is still very good and would be even better if you meet the CC spending requirements (like you say you do), but I'm just curious how you approach this.
It comes directly out of my checking acc as its a debit transaction. 3% on $6 would be 1.5 cents, not really sure what you're referring to in regards to the interest rate dropping to 2.77, and I'm not sure how you're calculating that? Its still 3.05% on up to 10 K in your account (without hitting the other tiers).
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Correction to some previous info.
Yesterday, Vanguard Prime MM hit 1.99% SEC Yield, and that includes factoring in the expenses on the fund. Compounded yield makes it 2.01%. As of right now, that is listed as the current yield today.
On May 30th, the SEC yield was 1.90%, compounded 1.92%. It's been on the rise little by little.
It's rated a lower risk investment than bond funds, and certainly more so of a lower risk than stock funds.
Jumped up another .01% today for 2.00% SEC and 2.02% compounded yield.
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One of my credit unions just started a savings account that offers 2.50% on up to $2,500. The yield drops for higher amounts (2.00% for the next $2,500, 1.5% for the next $5,000) but I'm definitely going to put at least $2,500 in there as it beats my Live Oak Bank account which offers 1.70%.
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It looks like Beam is a great place to earn a great interest rate (which you can do things to increase, starting around 2% and going up to 4%) AND it is FDIC-insured. If you decide to get on the waitlist, can you please use my link here? https://meetbeam.com/?r=CASH-Hklmi5Qaof
I also just bumped you up with your link. Thanks for the tip!