Where do you keep your liquid money?

[Jules13]

Where does everyone keep their "emergency fund" or money/savings they might need access to? 

We have ours in an online account (leftover from the long ago years when online savings accounts got a great interest rate), but I think I want to move it somewhere that gets a higher rate.  It's 22k, but I also want to bump it up to about 30k. 

I recently moved our checking/savings to a local credit union to a "reward checking" with a higher interest rate (so long as you meet their debit card transaction requirements) but don't think I want to fool with another of those accounts for my emergency fund. 

Advice?

Thanks!
Jules

[brewer12345]

I keep about 100k in various safe accounts.  Some is in an online savings account, but most of it is in long term CDs and I bonds, which both pay more interest than the online savings account.  If something arises that my savings balance cannot handle, I can surrender the CDs or I bonds at a small penalty.

[Joet]

Not sure if it meets your definition of 'liquid', but I use I-bonds, have to take them to a bank if paper, or have to transfer/ACH to your checking out if electronic

pays published CPI/aka inflation rate , effectively better than a 10-year TIP

good enough for me

[totoro]

I thought you were talking about alcohol.

[matchewed]

No no... that's liquid courage.

Checking/savings. Everything else is in equities at the moment.

[chucklesmcgee]

You may not need an emergency fund, depending on the size of your stashe. An "emergency fund" is a largely non-mustachian concept. Non-mustachians spend nearly all of what they earn, except for what little gets earmarked as "retirement money" and is whisked away into inaccessible IRAs/401ks until the nonmustachian retirement age rolls around. Money that's not going to be put into retirement or "saved" for that overpriced vacation is then placed into an "emergency fund", because nonmustachians do not otherwise have any funds available. Since nonmustachians usually save so little relative to their income, emergency funds tend to be just barely sufficient to cover an emergency and as a result, are typically put into stable but extremely low-yield accounts since fluctuations can't be tolerated (and nonmustachians don't want to "gamble it on the stock market").

If you're a moderate to advanced mustachian, an emergency fund, here a savings account returning below inflation, is irrelevant and costly. If your total non-tax exempt stash is substantially above whatever you'd need in an emergency, there's no need to "play it safe" by putting the money into a low-yield account. Index funds will provide substantial positive returns. In the unlikely event the markets completely crash and you need to tap your money, you'll still have enough to make ends meet.

Relative liquidity also isn't an issue. You can sell and transfer the proceeds of an index fund in 5-7 days. No emergency requires immediate cash right that second short of ransom or perhaps arrest. Basic expenses in the event of a job loss are small and incremental and nothing a credit card can't handle. Health events take months to be processed and even then you can pay with a credit card and float the balance interest free for another 30 days.

In the meantime, parking a substantial amount in a savings account will be costing you hundreds to thousands.

[KingMe]

If you have a HELOC, you can tap that in case you need instant cash and don't want to sell investments. That was suggested by MMM and makes a lot of sense. If you are making more than you earn, you should be able to pay off the HELOC fairly quickly.

Another trick to have cash without having to sell anything is by not reinvesting your dividends and capital gains automatically. I have my taxable investment income sent to MMAs or my online savings accounts. I reinvest at the beginning of the year to reallocate the portfolio. However, over the course of the year, if i had a sudden need for cash, I would have a few thousand just sitting there. (Such a need hasn't come up yet.)

[brewer12345]

If you have a HELOC, you can tap that in case you need instant cash and don't want to sell investments. That was suggested by MMM and makes a lot of sense. If you are making more than you earn, you should be able to pay off the HELOC fairly quickly.

Another trick to have cash without having to sell anything is by not reinvesting your dividends and capital gains automatically. I have my taxable investment income sent to MMAs or my online savings accounts. I reinvest at the beginning of the year to reallocate the portfolio. However, over the course of the year, if i had a sudden need for cash, I would have a few thousand just sitting there. (Such a need hasn't come up yet.)

And this was abominably poor advice by MMM.  Bad things happen when you need cash and oddly enough they tend to gang up on you.  HELOC lines can be cut completely at the whim of the lender.  Ditto for credit cards.  There simply is no substitute for the ability to raise cash from a savings account or similar vehicle.

[mm31]

HELOCs are a horrible idea, I wouldn't recommend them for anything.

[totoro]

HELOCs are just like anything else, run the numbers.

Credit can be used or it can be abused.  Sometimes credit makes you more than it costs you: good debt.

[TheDude]

MMMs way makes sense for him. I'm not comfortable with it. I keep about 25K in an account that works as both my emergency fund and checking. Its a reward checking that pays 2.5% up to 25k. I also have an HSA I could pull about 5k out of pretty quick if needed.

I think you need to do what makes you sleep at night. MMM is handy and has a paid for house. If shit hits the fan he can cut his expense to about nothing. You only need to cover 3-5 days as it doesnt take that long to pull money out of an brokerage account.

[randymarsh]

Charles Schwab checking and savings. I honestly think it's the best kept secret in banking these days, as long as you don't need convenient branch access. No minimums, Visa debit card, reimbursed ATM fees worldwide (no limit), free checks, and a great iPhone app.

[Jules13]

Thanks...will look into all of these.  I am obviously new to the Mustache world and don't know all of his "philosophies" yet, but want to get my finances back on track.  I still need a cash emergency fund for peace of mind.  But, don't like missing out on higher earnings either.
Thanks.
J.

[KingMe]

I don't think using a HELOC is terrible advice for people.  Why tie up large amounts of cash in case "something" unforeseeable happens and getting a horrible interest rate? further, i would 't want to pay capital gains taxes to pay for some large necessary expense if I have a good line of credit available for short term needs.

I would only suggest this for people who will be able to pay themselves back in a short period of time.  The odds of having to redo a roof is low, but cost is high. Should I really keep an emergency fund of $20,000 for this unlikely event if I have a line of credit?  Good HELOC rates are sub-5% right now and stock markets are at 10% for be year. Not to me took the potential tax deduction for home interest debt.

[hybrid]

Jules, we are new to the mustachian world also but were already using some of the principles.  For me, I like 15K in checking and I have about 29K in the stock market which I manage myself and have quick access to if required.  That 29K was 20K two years ago, so my "emergency fund" has been growing over time. CDs have been very unattractive in this economy because they pay such a low yield.  I would opt for dividend stocks if you are comfortable with the risk that comes with them. 

[Sri C.]

MMMs way makes sense for him. I'm not comfortable with it. I keep about 25K in an account that works as both my emergency fund and checking. Its a reward checking that pays 2.5% up to 25k. I also have an HSA I could pull about 5k out of pretty quick if needed.

Does this bank/CU still offer the reward checking that pays 2.5% up to 25k?

If so, do let me know.

Charles Schwab checking and savings. I honestly think it's the best kept secret in banking these days, as long as you don't need convenient branch access. No minimums, Visa debit card, reimbursed ATM fees worldwide (no limit), free checks, and a great iPhone app.

The "reimbursed ATM fees worldwide (no limit)"part is very useful. What's the currency exchange values like? Do you have to do certain number of trades to enjoy this account or is this like any other bank account?

[TheDude]

MMMs way makes sense for him. I'm not comfortable with it. I keep about 25K in an account that works as both my emergency fund and checking. Its a reward checking that pays 2.5% up to 25k. I also have an HSA I could pull about 5k out of pretty quick if needed.

Does this bank/CU still offer the reward checking that pays 2.5% up to 25k?

If so, do let me know.

Charles Schwab checking and savings. I honestly think it's the best kept secret in banking these days, as long as you don't need convenient branch access. No minimums, Visa debit card, reimbursed ATM fees worldwide (no limit), free checks, and a great iPhone app.

The "reimbursed ATM fees worldwide (no limit)"part is very useful. What's the currency exchange values like? Do you have to do certain number of trades to enjoy this account or is this like any other bank account?

Sure the bank is First Arkansas Bank and Trust the account is called Pure Checking. I've had the account since like 2006 or 2007. Starting in 2009 or so they restricted applications to Arkansas residents only. It used to say that somewhere on the website but I dont see where it says that anymore. It may be worth a try submitting an app.

[Sri C.]

Sure the bank is First Arkansas Bank and Trust the account is called Pure Checking. I've had the account since like 2006 or 2007. Starting in 2009 or so they restricted applications to Arkansas residents only. It used to say that somewhere on the website but I dont see where it says that anymore. It may be worth a try submitting an app.

Looks good!

I didn't find a page about eligibility requirements - do they have one hidden somewhere?

Also do they do a hard pull on your credit report?

[madage]

Also do they do a hard pull on your credit report?

Do you have a good reason to worry about this? A single hard pull added to a credit score is pretty insignificant (3-5 points? usually bounces back within a month or two).

[Joet]

^^^ Precisely this, bold added by me for emphasis.

It's not the stuff you can plan for that Mustachians do well that you're keeping an emergency fund for. It's the job loss, basement flood, car exploded, medical bill type stuff.

Think about this: the economy sees a massive, unexpected downturn. This depresses your stock prices. No problem - until the downturn costs you your job. Now, you have to sell equity to raise liquid cash - precisely when the price of that equity is depressed. (selling at a loss)

A liquid cash emergency fund is NOT a bad idea.

+1
We don't like to talk about it, but the last recession involved a trifecta of uberpwnage:
a)job loss
b)equity market collapse
c)housing market collapse

Will the next recession involve all three of these? Who knows.

If your "emergency fund" is your HELOC, CC cash-advance, 90-100% equity portfolio, prepare to sell at a huge loss to meet current expenses.
"Of course it cant happen again". To that I remind everyone that the chance of another recession is always 100%. I-bonds are a nice happy-medium portfolio stabilizer [and inflation indexed] bond-like-instrument that will offer some returns and are something you can store and forget about.
Or as mentioned a high-yield checking or something is good too [if you can tolerate their multitude of continual requirements regarding debits and automatic deposits/etc]

[nktokyo]

I keep a year's money in cash at all times.

BUT I did that after investing and setting up some passive income streams.

[Jules13]

nktokyo, do you keep your year's worth of cash just in savings?  Just curious if you've found anything with a bit higher yield?  Thx.

And thx for all the other responses too!

J.

[nktokyo]

Hi Jules,

I keep it in an offsetting account against property debt. I'm a professional renovator and constantly have about 4-5 houses being worked on so there's always interest to offset. This is all in NZ so it cancels out debt at 6%, which I'm happy with.

[Mr Mark]

If you have a HELOC, you can tap that in case you need instant cash and don't want to sell investments. That was suggested by MMM and makes a lot of sense. If you are making more than you earn, you should be able to pay off the HELOC fairly quickly.

Another trick to have cash without having to sell anything is by not reinvesting your dividends and capital gains automatically. I have my taxable investment income sent to MMAs or my online savings accounts. I reinvest at the beginning of the year to reallocate the portfolio. However, over the course of the year, if i had a sudden need for cash, I would have a few thousand just sitting there. (Such a need hasn't come up yet.)

And this was abominably poor advice by MMM.  Bad things happen when you need cash and oddly enough they tend to gang up on you.  HELOC lines can be cut completely at the whim of the lender.  Ditto for credit cards.  There simply is no substitute for the ability to raise cash from a savings account or similar vehicle.

^^^ Precisely this, bold added by me for emphasis.

It's not the stuff you can plan for that Mustachians do well that you're keeping an emergency fund for. It's the job loss, basement flood, car exploded, medical bill type stuff.

Think about this: the economy sees a massive, unexpected downturn. This depresses your stock prices. No problem - until the downturn costs you your job. Now, you have to sell equity to raise liquid cash - precisely when the price of that equity is depressed. (selling at a loss)

A liquid cash emergency fund is NOT a bad idea.

A cash fund may be a good idea, but not because the emergency event somehow is 'forcing you to sell equities at a low'.

These are separate things. 1 is liquidity, the ability to pay for things, by writing a cheque or paying physical cash. Or by your access to borrow ( like a cc). As noted earlier on this thread, advanced mustashians should be able to access their stash within a few days. So they do not need emergency funds like ordinary people.
2  is investment performance and asset allocation. Keeping cash in large amounts in case of another market crash is pure market timing.

[Mr Mark]

As to OP, where to keep the pocket change?

I have a core checking account with all the autopayments, and an attached savings for cashflow management. Probably has around 2 k right now. Safe deposit with 2 grand in cash. A couple of offshore accounts with a few k in each, mainly to avoid wire transfer fees when I make various payments outside US, so they act as a buffer, plus enable e banking. An investment buffer account with 3 k in it right now.

That it. Rest is in Vanguard and other investments of varying liquidity. No HELOC (agree a bad idea) but credit cards with capacity of  several months expenses.

[the fixer]

Recently made 5% of my AA cash or cash-equivalent for liquidity and guaranteed deposits. I'm buying no penalty CDs with Ally Bank in $2k increments, and the remainder goes in a 360 savings account. Ally no penalty CDs pay 0.86% for 11 months, about double the SEC yield of the Vanguard short term bond index with none of the risk.

I think of this cash as a small deflation hedge, it helps me sleep at night, plus I can dump it in the market if things tank for some reason.

[Posthumane]

People here talk about the risk of the markets being depressed at around the time when you have to sell. How much of a risk is that? A 10-15% short term drop in the equities market is a huge deal but overall won't affect you that much, since presumably you would only have to sell a part of your stash, not all of it. And if you have a more diversified portfolio (such as Permanent Portfolio or something similar) then chances are some of your assets will be going up with an equities market crash, and you could sell those off. Keep in mind that this is an "emergency" which may or may not happen, whereas losing money in a savings account due to inflation is something that is happening constantly.

I have about two months worth of expenses in my regular day-to-day use account. This just makes it simple if I have some large bill that comes up. Even then, when I've had large unexpected expenses come up ($10k, or 4 months of regular spending was the last big one) I just put it on my visa, then at the end of the month paid off most of it with savings and the rest with my line of credit. LOC is unsecured so not tied to house value, though that makes the rate a bit higher, and has room for about a year's worth of basic expenses. Credit cards have room for another year's worth of expenses so if I really had to I could bite the bullet and rack those up. TFSA has about a year's worth of expenses in it, which is an investment account so I could potentially take a bit of a loss if I had to sell, but see my first paragraph about the significance of that. So, without having a real "emergency fund" set aside I could lose both my jobs and if I couldn't find anything at all that makes money I could last about three years. After that I would have to dip into my RRSP, though I wouldn't have to pay tax on that if I didn't have any other income.

[CU Tiger]

Big EF is in a prime reserve fund with check writing priviledges. The baby EF is in an online acct. I like having emergency funds so much that my emergency fund has an emergency fund.

We also have a small savings account and a checking acct at the credit union. At an average time those two accounts have about $4000 together.

[TheDude]

Sure the bank is First Arkansas Bank and Trust the account is called Pure Checking. I've had the account since like 2006 or 2007. Starting in 2009 or so they restricted applications to Arkansas residents only. It used to say that somewhere on the website but I dont see where it says that anymore. It may be worth a try submitting an app.

Looks good!

I didn't find a page about eligibility requirements - do they have one hidden somewhere?

Also do they do a hard pull on your credit report?

Hey Sri C I emailed the customer service. Unfortunately this is the response I got.

Our Online Banking is currently being redesigned and some of our normal messges are not showing up. We are still not offering new checking and savings account for out of state residents.

Sorry I wouldn't have said anything if I would have known the requirement was still in place.

[randymarsh]

The "reimbursed ATM fees worldwide (no limit)"part is very useful. What's the currency exchange values like? Do you have to do certain number of trades to enjoy this account or is this like any other bank account?

I've never been out of the country with this card yet, but I imagine it's a straight conversion. When I was in Italy in 2011 and using a Capital One debit card, I would go to an ATM and withdraw 100 euros and my account would be debited something like $130 (at the time 1 euro was equivalent to $1.30). Schwab appears to be the same way.

When you open it, Schwab will automatically open up a brokerage account, but you don't ever have to use it or make any trades. I did use it to initially fund my account though. Existing checking > Schwab brokerage > Schwab checking. The reason for this is because Schwab won't let you connect your existing checking to your new checking online (you have to do that through the mail)  but they will connect the brokerage to your existing checking online. Hope that makes sense!