Where do you stash your emergency stash?

[Rollin]

I have just sold a house and would like to finally set up a emergency fund ($50,000) with some of the proceeds.  I set it in a Capitol 360 account for the moment (.75% interest) and know that Barclay's is a bit higher, but I want to sort a few options before I just jump at that.  I'm talking with my tax guy next week about this and the remaining $50K, but your ideas will help in my discussions with him.

I won't need the money in an instant, as a few days or even weeks before getting at it is fine.  Where do you keep yours?

[matchewed]

So location of your emergency fund is one of those tricky "it's up to you and your circumstances" kind of questions.

The first part is based on your risk tolerance (or rather your tolerance of various sorts of risks and how your particular circumstances influence those). How is your employment situation? How easy would it be to find a new job if you needed to? How is your health? Your family's health? Is there a foreseeable event outside of those that you think can happen in a few years? What is your cash flow like outside of work?

Answers to these questions should guide you on how liquid and how much risk you need and can take (or even if you need) an emergency fund. If you're just looking at traditional savings accounts then going for the one that has the highest interest with the least acceptable amount of hoops to jump through to accomplish should suit you just fine. You could also ladder the emergency fund through CD's if you have less need for having it all available at once. There are a couple of different methods and options out there.

[MandyM]

I only keep $2-3K in a savings account at a time. Sometimes less. The rest is in Vanguard.

I don't need ready access to the money; my job is secure, my savings rate is high, and I have a credit card with a fairly high limit. Plus, I have a wealthy parent that could give me a short term loan if I was somehow in a really tight bind, although I have no idea what that would really be...

I think you should really consider what kind of calamity would require that you access $50K instantly. Sudden job loss and the immediate plummet of the stock market? How much are you willing to pay in order to cover that unlikely event? Because the difference in earnings between an index fund and the savings account is easily $3,000...the first year. The "price" for the savings account goes up from there.

[KMMK]

I only keep $2-3K in a savings account at a time. Sometimes less. The rest is in Vanguard.

I don't need ready access to the money; my job is secure, my savings rate is high, and I have a credit card with a fairly high limit. Plus, I have a wealthy parent that could give me a short term loan if I was somehow in a really tight bind, although I have no idea what that would really be...

I think you should really consider what kind of calamity would require that you access $50K instantly. Sudden job loss and the immediate plummet of the stock market? How much are you willing to pay in order to cover that unlikely event? Because the difference in earnings between an index fund and the savings account is easily $3,000...the first year. The "price" for the savings account goes up from there.

Same as this except without the rich parent. I have a buffer in my chequing account of around 1 months expenses and the rest is invested. No need for a specific emergency fund. But it depends on your personal taste - my husband has around a year of expenses just in high interest savings account because he feels more secure that way.

[Rollin]

So location of your emergency fund is one of those tricky "it's up to you and your circumstances" kind of questions.

The first part is based on your risk tolerance (or rather your tolerance of various sorts of risks and how your particular circumstances influence those). How is your employment situation? How easy would it be to find a new job if you needed to? How is your health? Your family's health? Is there a foreseeable event outside of those that you think can happen in a few years? What is your cash flow like outside of work?

Answers to these questions should guide you on how liquid and how much risk you need and can take (or even if you need) an emergency fund. If you're just looking at traditional savings accounts then going for the one that has the highest interest with the least acceptable amount of hoops to jump through to accomplish should suit you just fine. You could also ladder the emergency fund through CD's if you have less need for having it all available at once. There are a couple of different methods and options out there.

Employment - great
Mine and family's health - great
New job ease - fairly good
Future "issues" - nothing foreseeable
Cash flow - covers more than 1/2 normal expenses - only debt is current house payment ~ $1,900/month for mortgage, taxes, and insurance (~$185,000 remaining at 2.85% for 13 more years - $80,000 equity)

So, I don't have a great need for $50k stashed close by under most people's standards.  Laddering CDs plus a little in Barclay's will probably do me.

I do have a little unreasonable worry over $$, for many reasons, but a lot to do with the fact that I was very hungry for a few years after I graduated high school.  That experience, plus my parent's tightness stick with me.  That's why I have worked so hard to become FI, and more recently followed this forum.  It helps with some of the insecurity I have over $$ (working to eliminate those issues).  So, you can see that it is partly emotion, and I need to add that it is partly lack of knowledge.  I would really feel more comfortable if I had a better understanding of investing, etc., as I have almost always done these things on my own.

On that last note, do you (or anyone else wishing to respond) have a good suggestion on reading material (books, etc.) that would provide a good overall understanding of investing.  Most of what I read is very detailed about one subject, and if I am missing part of the big picture I get lost.

[Rollin]

I only keep $2-3K in a savings account at a time. Sometimes less. The rest is in Vanguard.

I don't need ready access to the money; my job is secure, my savings rate is high, and I have a credit card with a fairly high limit. Plus, I have a wealthy parent that could give me a short term loan if I was somehow in a really tight bind, although I have no idea what that would really be...

I think you should really consider what kind of calamity would require that you access $50K instantly. Sudden job loss and the immediate plummet of the stock market? How much are you willing to pay in order to cover that unlikely event? Because the difference in earnings between an index fund and the savings account is easily $3,000...the first year. The "price" for the savings account goes up from there.

Could go to the parents if needed as well, but then I would like to have the cash to pay them back.  I guess you mean I could lock the funds up a little longer (like a longer term CD) and take it out to repay if any event were to happen that would cause me to need it.  Good points - thanks.

BTW - I've been studying the Vangaurd funds and am looking for the best interest rate with low volitivity.  I may call them for advice in the next couple of weeks.

[matchewed]

So location of your emergency fund is one of those tricky "it's up to you and your circumstances" kind of questions.

The first part is based on your risk tolerance (or rather your tolerance of various sorts of risks and how your particular circumstances influence those). How is your employment situation? How easy would it be to find a new job if you needed to? How is your health? Your family's health? Is there a foreseeable event outside of those that you think can happen in a few years? What is your cash flow like outside of work?

Answers to these questions should guide you on how liquid and how much risk you need and can take (or even if you need) an emergency fund. If you're just looking at traditional savings accounts then going for the one that has the highest interest with the least acceptable amount of hoops to jump through to accomplish should suit you just fine. You could also ladder the emergency fund through CD's if you have less need for having it all available at once. There are a couple of different methods and options out there.

Employment - great
Mine and family's health - great
New job ease - fairly good
Future "issues" - nothing foreseeable
Cash flow - covers more than 1/2 normal expenses - only debt is current house payment ~ $1,900/month for mortgage, taxes, and insurance (~$185,000 remaining at 2.85% for 13 more years - $80,000 equity)

So, I don't have a great need for $50k stashed close by under most people's standards.  Laddering CDs plus a little in Barclay's will probably do me.

I do have a little unreasonable worry over $$, for many reasons, but a lot to do with the fact that I was very hungry for a few years after I graduated high school.  That experience, plus my parent's tightness stick with me.  That's why I have worked so hard to become FI, and more recently followed this forum.  It helps with some of the insecurity I have over $$ (working to eliminate those issues).  So, you can see that it is partly emotion, and I need to add that it is partly lack of knowledge.  I would really feel more comfortable if I had a better understanding of investing, etc., as I have almost always done these things on my own.

The best tool to combat that is knowledge then. You're in a great position. You probably need some greater understanding of those fundamentals finance is based on rather than investing fundamentals (for this particular issue). If your cash flow outside of traditional employer income is covering half your expenses you're half way to FIRE. That is a mighty secure position. I'm all for being conservative with my assumptions. But be realistic with your starting point. You've got a good starting point. If you can't see any issue that $50k is needed for then perhaps a smaller emergency fund would be more advantageous, or on the other hand put a portion in secure positions (savings/CD's) and the rest in a more risky position so that you can have some long term growth in the mix of it (index funds of various risk tolerances that match up with yours).

[frugaliknowit]

I stash the cash in "kasasa" accounts (see kasasa.com).  These are high interest "jump through hoops" checking accounts.  My two average 2.75%. 

My emergency cash level is high compared to most on this blog as I am a one person household, do not own a vehicle and if I had to replace my job, might have to take a suburban job where I would need to buy one (that's my thinking).

[Scandium]

Anyone use I-bonds for emergency cash? They track inflation so about 2-2.5% now. And after one year you can access it freely. I've been thinking of laddering some cash into I-bonds, but not sure it's worth the hassle.

Roughly the difference vs savings account on $10k would be ~$160 pa. so not huge difference.

[RyanAtTanagra]

I keep a $1000 buffer in my checking account as my emergency fund.  Everything else has a purpose, like house savings, investments.  If something bad happens I can tap into those if needed, so I guess those could be included as my emergency fund, but they have other primary purposes.  Keeping a huge emergency fund for a less-case scenario means you miss out on gains during the most-likely scenarios.

[Rollin]

The best tool to combat that is knowledge then. You're in a great position. You probably need some greater understanding of those fundamentals finance is based on rather than investing fundamentals (for this particular issue). If your cash flow outside of traditional employer income is covering half your expenses you're half way to FIRE. That is a mighty secure position. I'm all for being conservative with my assumptions. But be realistic with your starting point. You've got a good starting point. If you can't see any issue that $50k is needed for then perhaps a smaller emergency fund would be more advantageous, or on the other hand put a portion in secure positions (savings/CD's) and the rest in a more risky position so that you can have some long term growth in the mix of it (index funds of various risk tolerances that match up with yours).

Yes, I believe you are correct in that I would like to have (and need more) knowledge, even if it is to tell me I did okay all these many years.  Also, I may just put approx. $25K very close (liquid) and tighten up on the rest (i.e., invest it with longer term in mind).

Thank you.