What do you guys recommend for investment of "Emergency Fund" besides Ally

[live4soccer7]

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?

[retireatbirth]

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.

[live4soccer7]

Can you elaborate more on the "muni fund"? Thanks.

[katsiki]

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/

[retireatbirth]

Can you elaborate more on the "muni fund"? Thanks.

FTABX and FHIGX

[aboatguy]

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) 

[CorpRaider]

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.

[VoteCthulu]

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.

[Cubert]

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.

[ender]

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.

[Acastus]

Vanguard Prime Money market current interest is 1.45%. No duration, no early withdrawal penalty. Min. $3k.

[live4soccer7]

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.

[Car Jack]

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.

[August26th]

Barclays Online Savings.

Currently offers 1.5% APY.

[yachi]

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.

[HBFIRE]

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.

[Radagast]

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?

[HBFIRE]

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.

[GuinnessPhish]

Is there any reason one shouldn't keep their emergency fund in a taxable vanguard account, investing in VTSAX?

[Will]

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.

[HBFIRE]

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.

[retireatbirth]

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.

[HBFIRE]

You may be forced to sell low.

That is what bonds are for.

[retireatbirth]

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.

[HBFIRE]

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.

[Padonak]

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.

[HBFIRE]

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).

[kpd905]

I move my emergency fund around to hit savings account bonuses.  You can usually get $800/year on a $15k emergency fund.

[Radagast]

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.

[HBFIRE]

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.

[MasterStache]

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.

[Vegasgirl]

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.

[HBFIRE]

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?

[BigHaus89]

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.

[JSMustachian]

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

[HBFIRE]

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.

[Radagast]

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.

[MasterStache]

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/

[HBFIRE]

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.

[Rosy]

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? 

[NoraLenderbee]

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.

[Indexer]

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.

[Arbitrage]

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. 

[frozen]

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.

[ulzxhi]

@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).

[privatefarmer]

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.

[jamaicaspanish]

Lake Michigan credit Union.
Max checking.
3% on up to 15k.
Easy requirements.

[rosarugosa]

Ally is offering a 2.15% 30-month IRA CD.

[DS]

Ally is offering a 2.15% 30-month IRA CD.

And no-minimum balance Savings just went up to 1.45%! Boom

[Michael in ABQ]

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.