Author Topic: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?  (Read 7000 times)

MMMary

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Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« on: December 20, 2013, 09:31:13 AM »
Hi everyone,

At 23 years old I'm very new to investing.  I have a baby emergency fund of $1500 sitting in the Savings account through my primary bank, and although I'm somewhat risk-averse, it's driving me crazy that it won't be gaining interest more than a tiny amount (it's so small, it's not even worth looking up... maybe like 2 or 3 cents a month??).  I'm adding about $400 a month to the account to beef it up.  I really liked the strategy mentioned here that allows a relatively larger interest growth.  Has anyone else tried this, and do you have any comments?
http://www.mint.com/blog/goals/where-to-stash-your-emergency-fund/

MI-NC

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #1 on: December 20, 2013, 10:22:36 AM »
Nice article,

Anyone have experience with the US Govt I-Bond strategy? The referenced article was published in June, 2011, so i'd be suprised if the i-bond rates were still the reported 4.6%.

matchewed

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #2 on: December 20, 2013, 10:26:37 AM »
Nice article,

Anyone have experience with the US Govt I-Bond strategy? The referenced article was published in June, 2011, so i'd be suprised if the i-bond rates were still the reported 4.6%.

http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

KingCoin

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #3 on: December 20, 2013, 10:33:08 AM »
Just keep the absolute dollars in mind. 1-2% on $1500 is $15-30. So probably not worth your time and the extra layer of liquidity hassles. As you emergency fund gets closer to $10k, this becomes marginally more interesting to think about.

Another Reader

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #4 on: December 20, 2013, 10:34:28 AM »
Pen Fed CU 5 and 7 year CD rates are 3.04 percent APY.  I bonds are 1.38 percent IIRC.  Minimum deposit at Pen Fed is $1,000.  You have to qualify to join, but it's fairly easy.

ASquared

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #5 on: December 20, 2013, 11:09:41 AM »
Second the Pentagon FCU recommendation.  I am considering doing this myself.  However I am considering Betterment - someone posted an interesting article on using Betterment for an emergency fund but I can't seem to find it right now. 

CanuckExpat

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #6 on: December 20, 2013, 12:49:45 PM »
We do the layered emergency fund ourselves. In case of needing money in a hurry we'd tap cash accounts, readily available credit, break CDs, sell bond, cash out taxable investments as needed (have never needed to do any of this).

We do keep relatively sizeable amounts (a few months worth to a year of expenses) in cash accounts and bond, and I count them towards the fixed income portion of my overall portfolio.

Since you mentioned you only have a "baby" emergency fund, maybe you should keep it all in cash until it grows large enough, then put extra money into something slightly less liquid.

MMMary

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #7 on: December 20, 2013, 02:47:05 PM »
Thanks everyone for the advice!

KingCoin -- I agree with your philosophy that it's not worth it for that amount of interest.  I might want to move some of it in something like 8 months to a years time, when it would be in the 5-6k range.

Another Reader-- Thank you for the Pen Fed suggestion!

ZsMom-- I will have to look in to Betterment.  Thank you!

I'm clearly just starting out--6 months ago I don't think I even knew people had an emergency fund.  Huge facepunch.  Slowly starting to learn more about saving & will eventually learn more about investing.

WillPen

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #8 on: December 20, 2013, 03:28:39 PM »
We have a high-yield checking account that pays 4.4% (!!!) per year on balances up to a certain amount...

KingCoin

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #9 on: December 20, 2013, 03:34:08 PM »
We have a high-yield checking account that pays 4.4% (!!!) per year on balances up to a certain amount...

Which one? How much? What hoops do you have to jump through? What restrictions do you face?

There have been posts about services like Mango before. Usually works out to getting paid $100-200 to reorganize your day to day finances plus face some restrictions on moving your cash around.

Another Reader

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #10 on: December 20, 2013, 03:36:06 PM »
You might want to look for high yield checking accounts at credit unions on-line or in your local area.  The previous poster is getting 4.4 percent on his.  Here in the SF Bay Area, Provident pays 1.76 percent.  These accounts usually require a direct deposit and/or another ACH transaction, plus a minimum number of debit card transactions per month.  One place to research these is at deposit accounts.com.  The link is

http://www.depositaccounts.com/checking/reward-checking-accounts.html

Pinball

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #11 on: December 22, 2013, 08:43:31 PM »
Do you not have mortgage offset accounts in the US?  This is a regular savings account linked to a mortgage where the balance of the savings is subtracted from the balance of the mortage when calculating interest.  Perfect for an emergency fund.  I have mine earning an effective rate of interest of 5.18% tax free.  This is Australia, so interest rates are higher across the board. Still a good return though given its completely liquid.

ASquared

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #12 on: December 22, 2013, 08:49:19 PM »
Do you not have mortgage offset accounts in the US?  This is a regular savings account linked to a mortgage where the balance of the savings is subtracted from the balance of the mortage when calculating interest.  Perfect for an emergency fund.  I have mine earning an effective rate of interest of 5.18% tax free.  This is Australia, so interest rates are higher across the board. Still a good return though given its completely liquid.


Not that I've ever heard!  But sounds cool I wish we did.

CanuckExpat

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #13 on: December 22, 2013, 11:05:48 PM »
Strangely enough, I can't access the Mint Blog post the OP mentioned, it could be a temporary thing. For anyone else that is curious, here is an entry from Bogleheads Wiki addressing the subject:

http://www.bogleheads.org/wiki/Emergency_fund#Multi-tiered_emergency_fund

WillPen

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #14 on: December 23, 2013, 08:54:05 AM »
King Coin --

Sign up for paperless statements (easy - I hate clutter and junk mail)
Sign up for Online Bill Pay (I do banking online anyways)
Have 2 ACH deposits each month (Paychecks electronically deposited anyways)
Have 30 debit card transactions in a month (easy between my wife and I)

We get 4.41% on balances up to $30k and 0.75% on everything over that. It just so happens that $30k is our "emergency" fund balance that we get to make work a little bit for us. The only thing we need to watch are the debit card transactions but that has never been a problem between 2 people.

It's with Vista Bank in West Texas. I think they're in need of deposit accounts.. I doubt that deal will be around forever but it's pretty convenient for us right now.

KingCoin

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #15 on: December 23, 2013, 11:26:46 AM »
King Coin --

Sign up for paperless statements (easy - I hate clutter and junk mail)
Sign up for Online Bill Pay (I do banking online anyways)
Have 2 ACH deposits each month (Paychecks electronically deposited anyways)
Have 30 debit card transactions in a month (easy between my wife and I)

We get 4.41% on balances up to $30k and 0.75% on everything over that. It just so happens that $30k is our "emergency" fund balance that we get to make work a little bit for us. The only thing we need to watch are the debit card transactions but that has never been a problem between 2 people.

It's with Vista Bank in West Texas. I think they're in need of deposit accounts.. I doubt that deal will be around forever but it's pretty convenient for us right now.

Seems pretty decent.

CanuckExpat

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Re: Small Emergency Fund -- Ally 5-Yr CDs & I-Bonds?
« Reply #16 on: December 23, 2013, 10:59:54 PM »
We have a high-yield checking account that pays 4.4% (!!!) per year on balances up to a certain amount...

Which one? How much? What hoops do you have to jump through? What restrictions do you face?

There have been posts about services like Mango before. Usually works out to getting paid $100-200 to reorganize your day to day finances plus face some restrictions on moving your cash around.
Search for rewards checking (or go here: http://www.money-rates.com/rewardschecking.htm)