Money market fund for emergency fund

DunderDunder Registered User regular
I currently have a fully funded (6 months) emergency fund (EF) sitting in my savings account. I was thinking about moving the full EF over into a money market fund (I have been eyeing Vanguard) to stop the impact from inflation. I know we have people here who are much more experienced in investing than I am at this point, so is there any strong arguments against my plan?

1. I've stumbled across some articles warning about possible negative interest rates and extremely low interest rates for MMF's in the current economy (unless I stumbled on old articles, but I doubt I did). I take this to be a situational problem and not a structural problem with MMF's (i.e it will change when the economy improves). Is this a strong enough situation where it is advisable to stay out of the money market funds?

2. I would still be in a stable financial situation after the switch, with enough balances in checking and saving accounts to handle minor emergencies (car breakdown, pipe bursting etc). Moving the EF will not impact my day-to-day financial situation in any way.


Thanks in advance for any advice

Posts

  • admanbadmanb unionize your workplace Seattle, WARegistered User regular
    edited August 2016
    I looked at this a while back and ended up going with an Ally Bank Online Savings Account. 1% APY, no fees.

    Ally also has a MMF but it's actually a lower yield then that account, because they give you a debit card and checks.

    admanb on
    bowen
  • schussschuss Registered User regular
    Yeah, Money Markets don't really make any money these days, so it doesn't make much difference.

    bowenQuidfirewaterwordElvenshaezepherina5ehren
  • DjeetDjeet Registered User regular
    You can get higher yields on funds you need to be liquid if you check out some credit unions online. Problem is it's a continual pain in the ass to jump through the hoops to get the better rate (cap on eligible balance, direct deposit required, certain number/month of debit transactions required).

  • MrTLiciousMrTLicious Registered User regular
    I keep my emergency fund in a CD. You get higher interest rates than a savings account/MMF, and in the case where you actually need to withdraw it, the penalty is going to be pretty minor compared to whatever problem prompted it.

  • MrTLiciousMrTLicious Registered User regular
    And if you do go with a bond fund, you're most likely not going to want a tax exempt fund, as those tend to be priced to be roughly equivalent to similar risk bonds discounted at the highest tax bracket. Assuming your income doesn't get to the top of the tax bracket, you're likely better off getting the higher interest rate and paying your lower tax on it.

  • SimpsoniaSimpsonia Registered User regular
    I was going to come in here and say Barclay's Bank has a 1.0% standard savings account, and a 1.05% dream savings account (with a bunch of restrictions). But a quick google shows that, apparently, GE Capital Bank now offers 1.05% standard and a bunch of other nice features for free. huffingtonpost.com/gobankingrates/ranked-the-10-best-saving_b_6463876.html

  • ThundyrkatzThundyrkatz Registered User regular
    edited August 2016
    nm

    Thundyrkatz on
  • bowenbowen How you doin'? Registered User regular
    MrTLicious wrote: »
    I keep my emergency fund in a CD. You get higher interest rates than a savings account/MMF, and in the case where you actually need to withdraw it, the penalty is going to be pretty minor compared to whatever problem prompted it.

    I haven't seen a CD that's even been competitive with ally bank.

    Most aren't even competitive with normal banks anymore unless you're willing to forgo it for 5 years, which defeats the purpose of emergency funds.

    Really though, 1% will keep pace with inflation well enough.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • MrTLiciousMrTLicious Registered User regular
    edited August 2016
    Early withdrawal penalties are usually only a fraction of the interest earned (if not, don't get it), making the holding time irrelevant.

    Right now you can get CDs with over 1.5% APY online (note that I have not checked that one to see what the withdrawal penalty is, so check that out before thinking about it).

    Locally it obviously depends where you are but in DC right now the best rates are about 1.85% (www.bankrate.com)

    MrTLicious on
  • bowenbowen How you doin'? Registered User regular
    MrTLicious wrote: »
    Early withdrawal penalties are usually only a fraction of the interest earned (if not, don't get it), making the holding time irrelevant.

    Right now you can get CDs with over 1.5% APY online (note that I have not checked that one to see what the withdrawal penalty is, so check that out before thinking about it).

    Locally it obviously depends where you are but in DC right now the best rates are about 1.85% (www.bankrate.com)

    Looks like it's 3 months worth of interest or something to that effect.

    Though we're talking about the difference of $15-20 difference on interested earned on 5k for added hassle.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • NamrokNamrok Registered User regular
    So, truthfully my paranoia with the banking system has caused me to move my emergency money out of the banks entirely. You are right to be worried about negative interest rates. And your desire to stay ahead of inflation is admirable. But sadly, it's strictly impossible unless you go with riskier asset classes, which defeats the purpose of an emergency fund. Especially since your emergency could very likely be tied to the state of the economy.

    Real talk. Almost everything is FDIC insured. But do you know how you'd actually get the money from that? Do you know how long it would take? Can you possibly imagine how dusty and disorganized that bureaucracy is going to be when push comes to shove? I have no doubt it'll be like the housing relief fund that was allocated back in 2009, where something like 1% of the funds ever got disbursed because nobody could figure out how to cut through the paperwork.

    And if negative interest rates are on your radar, which I think they rightly should be, you need to think about bank failures. Because right now european banks are being absolutely crushed under negative interest rates. Their contingency plans mostly revolve around their customers being on the hook for a "bail in", since the governments can't afford to do more "bail outs". And what a bail in entails is that they seize the funds you have in them, and you get pennies on the dollars back, and maybe some worthless stock in banking company. Because that's what needs to happen for the bank to stay solvent.

    So these days I have my "I've been laid off" emergency fund in a bank, and my "Oh fuck there's been another 'banking holiday' and I gotta pay for food" fund in a safe bolted to the concrete.

    Sure, I might be paranoid. Well, I am paranoid, but perhaps justifiably so? Regardless, I view losing minimal interest on about 5-10% of my emergency money as worth having cash on hand if shit hits.

  • bowenbowen How you doin'? Registered User regular
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
    MrTLiciousdavidsdurionsschussDaenrisQuidDarkewolfeInquisitor77firewaterwordAngelHedgiea5ehren
  • NamrokNamrok Registered User regular
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

  • AiouaAioua Ora Occidens Ora OptimaRegistered User regular
    Namrok wrote: »
    So, truthfully my paranoia with the banking system has caused me to move my emergency money out of the banks entirely. You are right to be worried about negative interest rates. And your desire to stay ahead of inflation is admirable. But sadly, it's strictly impossible unless you go with riskier asset classes, which defeats the purpose of an emergency fund. Especially since your emergency could very likely be tied to the state of the economy.

    Real talk. Almost everything is FDIC insured. But do you know how you'd actually get the money from that? Do you know how long it would take? Can you possibly imagine how dusty and disorganized that bureaucracy is going to be when push comes to shove? I have no doubt it'll be like the housing relief fund that was allocated back in 2009, where something like 1% of the funds ever got disbursed because nobody could figure out how to cut through the paperwork.

    And if negative interest rates are on your radar, which I think they rightly should be, you need to think about bank failures. Because right now european banks are being absolutely crushed under negative interest rates. Their contingency plans mostly revolve around their customers being on the hook for a "bail in", since the governments can't afford to do more "bail outs". And what a bail in entails is that they seize the funds you have in them, and you get pennies on the dollars back, and maybe some worthless stock in banking company. Because that's what needs to happen for the bank to stay solvent.

    So these days I have my "I've been laid off" emergency fund in a bank, and my "Oh fuck there's been another 'banking holiday' and I gotta pay for food" fund in a safe bolted to the concrete.

    Sure, I might be paranoid. Well, I am paranoid, but perhaps justifiably so? Regardless, I view losing minimal interest on about 5-10% of my emergency money as worth having cash on hand if shit hits.

    The FDIC/NCUA are efficient authoritarian nightmares, actually. There was an interesting story about it on NPR a while back.

    In the general case they aren't paying out anything to the customers, because they arrange for another existing bank to take on the deposits.

    Basically if your bank fails and your FDIC/NCUA insurance fails, well I hope your safe is filled with farming equipment and guns because some shit has gone seriously sideways.

    life's a game that you're bound to lose / like using a hammer to pound in screws
    fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
    that's right we're on a fucked up cruise / God is dead but at least we have booze
    bad things happen, no one knows why / the sun burns out and everyone dies
    bowenMrTLiciousdavidsdurionsMichaelLCDaenrisQuidDarkewolfefirewaterwordAngelHedgiea5ehrenam0n
  • NamrokNamrok Registered User regular
    edited August 2016
    Aioua wrote: »
    Namrok wrote: »
    So, truthfully my paranoia with the banking system has caused me to move my emergency money out of the banks entirely. You are right to be worried about negative interest rates. And your desire to stay ahead of inflation is admirable. But sadly, it's strictly impossible unless you go with riskier asset classes, which defeats the purpose of an emergency fund. Especially since your emergency could very likely be tied to the state of the economy.

    Real talk. Almost everything is FDIC insured. But do you know how you'd actually get the money from that? Do you know how long it would take? Can you possibly imagine how dusty and disorganized that bureaucracy is going to be when push comes to shove? I have no doubt it'll be like the housing relief fund that was allocated back in 2009, where something like 1% of the funds ever got disbursed because nobody could figure out how to cut through the paperwork.

    And if negative interest rates are on your radar, which I think they rightly should be, you need to think about bank failures. Because right now european banks are being absolutely crushed under negative interest rates. Their contingency plans mostly revolve around their customers being on the hook for a "bail in", since the governments can't afford to do more "bail outs". And what a bail in entails is that they seize the funds you have in them, and you get pennies on the dollars back, and maybe some worthless stock in banking company. Because that's what needs to happen for the bank to stay solvent.

    So these days I have my "I've been laid off" emergency fund in a bank, and my "Oh fuck there's been another 'banking holiday' and I gotta pay for food" fund in a safe bolted to the concrete.

    Sure, I might be paranoid. Well, I am paranoid, but perhaps justifiably so? Regardless, I view losing minimal interest on about 5-10% of my emergency money as worth having cash on hand if shit hits.

    The FDIC/NCUA are efficient authoritarian nightmares, actually. There was an interesting story about it on NPR a while back.

    In the general case they aren't paying out anything to the customers, because they arrange for another existing bank to take on the deposits.

    Basically if your bank fails and your FDIC/NCUA insurance fails, well I hope your safe is filled with farming equipment and guns because some shit has gone seriously sideways.

    Don't judge.

    Also...
    The Bank of Clark County had 100 employees and assets of $446 million — it was a really small bank. But the federal takeover kept 80 FDIC agents, about 50 Bank of Clark County staff, and 100 Umpqua employees, working round the clock for three days.

    Most of the largest banks in trouble right now — Citibank, Bank of America — are about 6,000 times the size of the Bank of Clark County and much, much more complicated.

    It's a cute article, but sort of a misleading best case scenario.

    Namrok on
  • MrTLiciousMrTLicious Registered User regular
    Namrok wrote: »
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

    The amount of time it will take to get a refund from your homeowner's insurance is going to be vastly longer than the turnaround on an FDIC payout.

    DarkewolfeAngelHedgie
  • AiouaAioua Ora Occidens Ora OptimaRegistered User regular
    FDIC payouts are in the form of:

    "Hello, it is the Monday after a three day weekend. We just wanted to let you know that your old bank no longer exists and your accounts are now available with this new bank. Have a nice day!"

    life's a game that you're bound to lose / like using a hammer to pound in screws
    fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
    that's right we're on a fucked up cruise / God is dead but at least we have booze
    bad things happen, no one knows why / the sun burns out and everyone dies
    Darkewolfe
  • NamrokNamrok Registered User regular
    MrTLicious wrote: »
    Namrok wrote: »
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

    The amount of time it will take to get a refund from your homeowner's insurance is going to be vastly longer than the turnaround on an FDIC payout.

    I figure if the banks collapse and my safe gets pried out of the concrete and stolen, I have bigger issues. It's not about any one method being infallible. It's about having multiple methods.

  • MrTLiciousMrTLicious Registered User regular
    Usually, but that event is probably more likely than getting your safe robbed. He's talking about the more extreme version which does happen occasionally.

  • DunderDunder Registered User regular
    Hey guys,

    Thanks for your input. It has given me some things to consider. I was not aware of the online savings accounts, thanks @admanb and @Simpsonia

  • AiouaAioua Ora Occidens Ora OptimaRegistered User regular
    MrTLicious wrote: »
    Usually, but that event is probably more likely than getting your safe robbed. He's talking about the more extreme version which does happen occasionally.

    It's relatively rare to get a direct payout. Going off of their list which dates back to Oct of 2000:

    There were 545 bank failures, of which only 31 had no acquirer. (5.7%) 2/3rds of those are, unsurprisingly, from '09 and '10. The most recent one was in 2013.

    life's a game that you're bound to lose / like using a hammer to pound in screws
    fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
    that's right we're on a fucked up cruise / God is dead but at least we have booze
    bad things happen, no one knows why / the sun burns out and everyone dies
    MrTLicious
  • Marty81Marty81 Registered User regular
    Namrok wrote: »
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

    In my experience most homeowners insurance policies specifically exclude cash as a covered item. Are you certain yours covers cash?

  • NamrokNamrok Registered User regular
    Marty81 wrote: »
    Namrok wrote: »
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

    In my experience most homeowners insurance policies specifically exclude cash as a covered item. Are you certain yours covers cash?

    Maybe they don't cover it broadly, but I had a specific list of valuables in the safe added. But perhaps I should read the specifics and not take my insurance agents word for it.

    bowen
  • bowenbowen How you doin'? Registered User regular
    Namrok wrote: »
    Marty81 wrote: »
    Namrok wrote: »
    bowen wrote: »
    you're more likely to get robbed and your safe broken into than the banks collapsing, requiring FDIC, in the 21st century

    That's why I pay homeowners insurance, with the contents of the safe specifically added.

    In my experience most homeowners insurance policies specifically exclude cash as a covered item. Are you certain yours covers cash?

    Maybe they don't cover it broadly, but I had a specific list of valuables in the safe added. But perhaps I should read the specifics and not take my insurance agents word for it.

    absolutely

    Mine didn't cover tech items over a certain value and I had to add a specific addition to my policy to cover it, as well as a total value that was limited by the policy. They didn't expect someone to have multiple computers and TVs and electronics equipment. That shit adds up quickly too it seems.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
    davidsdurions
  • DarkewolfeDarkewolfe Registered User regular
    The FDIC doesn't protect your shit by actually giving you your money back, anymore for the most part. They protect your shit by ensuring that the banks they insure aren't going to fuck up to begin with.

    Any money covered by FDIC is protected until society itself collapses and you're bartering gold bars and hand jobs for cans of beans.

    What is this I don't even.
    am0n
  • MichaelLCMichaelLC In what furnace was thy brain? ChicagoRegistered User regular
    edited August 2016
    Darkewolfe wrote: »
    The FDIC doesn't protect your shit by actually giving you your money back, anymore for the most part. They protect your shit by ensuring that the banks they insure aren't going to fuck up to begin with.

    Any money covered by FDIC is protected until society itself collapses and you're bartering gold bars and hand jobs for cans of beans.

    PROTIP: Make sure a can opener is included before the transaction begins.

    Yeah, if your don't like banks, fine. But the FDIC is one thing we're doing right.

    MichaelLC on
    "Never believe management about anything anywhere." -Aistan
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