What to do with Emergency Fund

[monkeywrangler71]

I would recommend you stop talking to your father about how much is in your account . You are living on a reduced income in a country that is teetering on the edge of collapse. There are far more factors to consider when investing than just potential rates of return, including your risk tolerance and your financial stabilty. Neither of which sounds high enough for you to be considering the stock market right now.

[greekislandgirl]

I would recommend you stop talking to your father about how much is in your account . You are living on a reduced income in a country that is teetering on the edge of collapse. There are far more factors to consider when investing than just potential rates of return, including your risk tolerance and your financial stabilty. Neither of which sounds high enough for you to be considering the stock market right now.

Heh, yeah, I don't talk to him about how much is in my account!! Unfortunately there are still (yes even in 2011!) a few things that I need an actual person to go and do for me in the US though since I'm not there and can't do it myself. So he had to take care of a few things at the bank for me and since they know us, I guess they told him. I never tell him anything, and I didn't ask him for advice either LOL! I really appreciate his willingness to do my errands once every 6 months or so so I try to be gracious about it!

[Pianolady]

My first thought is $2000 is not enough to keep liquid. Just today I found out I'm going to need a root canal and a crown. I'd be in a big panic without that EF. It wouldn't take much to have that disappear quickly.

[laura-n-sasha]

First off, instead of having it in a checking account, how about putting the bulk of it into a Money Market account within the same company. That way you can get a pittance of an interest rate so that the money is "working" for you.

Or you could get an account with ING Direct, an online bank. Their MM rates are a little higher than others at 0.85 APY. You get the interest payment every month.

I agree and EF is just that. Losing to inflation is not fun but its probably a better choice for an EF than an investment subject to big losses. ...

If you have your money in a checking account or savings account, how are you losing money? You are not taking it out and you are not using it. It gets no interest and there are no fees, so how are you losing to inflation?

Investments can lose money and they can gain money. The trouble with most investments are that you have to pay an extra fee or brokerage fee just to buy a stock. You do not have to do that with CDs UNLESS you take the money out before the CD comes due.

I would not suggest you put the money into a CD. It is your Emergency Fund and it should be liquid and accessible.

... I like FDIC insured accounts but with the US government broke it ...

The US government has not broken the FDIC insured accounts. Even with over 90 bank failures this year alone, there has not been a run on the banks. The banks closed and they were acquired by other banks. People were able to get to their money.

I would suggest a great guy's blog to learn more about banks, credit unions, and CDs: www.depositaccounts.com/blog/
You might do like others have suggested, once you get to your 6 months of living expenses, then the rest is gravy.

Build the gravy for a CD or some other mechanism that will earn you more than the 0.05 - 0.10 percent you may earn on a MM account. Do it for a short term rather than long term. See how it feels. If it feels good and you do not have anything to worry about, do another one for a longer term. or wait, get the money from the first and put it plus the new money into another CD. That is what is called laddering: a 3 month CD, a 6 month CD, a 9 month CD, 1 year CD, 1.5 year CD, 2 year CD, 3 year CD etc, etc.

Once you are feeling fabulous, start doing this with Bonds. However, I would not suggest Greek ones

[peanut]

Laura: I think Anna means the inflation rate is like 2% or whatever, and the interest is less...meaning the value of the money is not keeping up with inflation. So $100 won't go as far when she pulls it out to use it as it did when she put it in. A problem up here in Canada too. that's why we have investments. Though they're not doing so hot these days either!

[greekislandgirl]

If you have your money in a checking account or savings account, how are you losing money? You are not taking it out and you are not using it. It gets no interest and there are no fees, so how are you losing to inflation?

I've lost a fair amount to inflation here in Greece. Inflation varies but it's around 4%. So if the value of my money drops by 4% every year and nothing is added, how am I not losing money?

Investments can lose money and they can gain money. The trouble with most investments are that you have to pay an extra fee or brokerage fee just to buy a stock. You do not have to do that with CDs UNLESS you take the money out before the CD comes due.

I have a few free trades on my account. I tend to be conservative so I could probably do a reasonable number of transactions without a fee.

The US government has not broken the FDIC insured accounts. Even with over 90 bank failures this year alone, there has not been a run on the banks. The banks closed and they were acquired by other banks. People were able to get to their money.

I'm aware of this, which is why I said I appreciate the protection of an FDIC insured account .

You might do like others have suggested, once you get to your 6 months of living expenses, then the rest is gravy.

I have set aside more than 6 months of living expenses, about 4-5 months worth is in the emergency fund. The rest is in sinking funds, food funds, and other places. I'm no longer actively setting aside money into an emergency fund.

Once you are feeling fabulous, start doing this with Bonds. However, I would not suggest Greek ones

Greek bonds have a tremendous payout if anyone is looking for a risky investment. I believe 2 yr bonds are making 110% interest (compare to French ones at around 1.5%).

[laura-n-sasha]

I've lost a fair amount to inflation here in Greece. Inflation varies but it's around 4%. So if the value of my money drops by 4% every year and nothing is added, how am I not losing money?

OK - you have X amount say for fun, 1,000 whatever euros, dollar, whatever. You have no interest with this account and no fees. It is just sitting there month after month. You look at it one month and it says 1,000, you look at it next month and it still says 1,000. That is what I mean by no inflation.

However, when you SPEND money, that is when you are seeing the inflation. The 10 lbs of rice at $1 last month is now $1.04 this month. That 10 lbs now cost 10.40. That is inflation.

I have a few free trades on my account. I tend to be conservative so I could probably do a reasonable number of transactions without a fee.

Excellent!

I'm aware of this, which is why I said I appreciate the protection of an FDIC insured account .

I was quoting Anna43.

I have set aside more than 6 months of living expenses, about 4-5 months worth is in the emergency fund. The rest is in sinking funds, food funds, and other places. I'm no longer actively setting aside money into an emergency fund.

Cool, then like I said before, putting the bulk of the Emergency Funds into an internet money market or liquid checking account like ING would be the way to go. That way you have access to it anywhere.
Then I would suggest the rest be put into a 3 month CD, see how it feels, and save up for another CD. The interest rates are not that great, but it is better than putting the cash under a mattress.

Greek bonds have a tremendous payout if anyone is looking for a risky investment. I believe 2 yr bonds are making 110% interest (compare to French ones at around 1.5%).

HA HA HA HA -

(I do like these smilies oh so much!)
If even the banks nor the European Central Bank does not want to buy the Greek bonds, I would not touch them nor would I suggest anyone else do either. As a matter of fact, they would be quite

Bonds that are in the us and other places usually have a good enough rating, but I would suggest instead doing CDs first. Nothing lost, a little gain and you can not touch it for the time that you put it in for. What's not to like?

[greekislandgirl]

You're right that inflation doesn't "kick in" until the money is spent - but looking at it historically, deflation is not a trend that is common in this part of the world - that is not to say it can't happen. We've got a rate of inflation that varies from 3-6% as compared to the same month the previous year.

My one bank account that is FDIC insured has a minimum with a high penalty for falling below the minimum (something like $50/year which I consider totally ridiculous since the ONLY benefit that I get from that account is FDIC insurance, nothing else). So that money is in effect locked in there getting no interest AND tied up like a CD, except, instead of 6 months or a year, it's stuck in perpetuity. (I have kept this account because I have had several automatic deposits being paid into it, and being abroad, I couldn't easily obtain and sign papers to change those - and rather than risk messing with deposits coming to me, either from the IRS or an employer, I left it alone.)

I think one of the first things I might do is consider moving the money from that bank (where I've been for 10 years) into a regular FDIC insured bank savings account where I can make some small interest on it, maybe a bank that has a branch near my parents so they can open it for me. I would then have the benefit of the insurance (which others on here may think I put too much emphasis on, but bear in mind the majority of our money is uninsured and we have nothing else). I can then take some time to consider my next move (whether I put it into a CD or not).

For now, I will not made any investments. I have plenty of things to worry about as it is. I don't want to be like my dad who is in a rotten mood all day if the stock market hasn't been doing well.

[laura-n-sasha]

Way to go Girl, very smart all around.

[mndtrp]

I once felt the same way about my emergency fund. However, I came to the conclusion that even if it was basically worth less each year, it was still worth the peace of mind that I could access that money in a relative instant if necessary.

In my opinion, money put into stocks should be considered money available to lose with no major ramifications. Kind of like loaning money to a friend. If the money comes back, great, if not, so be it. Bonds are a bit different, but should still be money that isn't earmarked for something else.

[frugalfoster]

Greek bonds have a tremendous payout if anyone is looking for a risky investment. I believe 2 yr bonds are making 110% interest (compare to French ones at around 1.5%).

Ok...this one made me smile...LOL

You are an intelligent girl. You have a reason why you set up your money the way you did...don't second guess yourself! You are the one living in Greece..you are seeing first hand what is going on. Go with your gut feeling! If my 2 dd's made half of the smart decisions that you have made...I would be thrilled!

[greekislandgirl]

Well just an update: I have no more FDIC insurance at all. I just closed the regular bank account when I discovered that they instituted a fee ($60) for not using the account "often enough." (I wasn't using it because their ATM fees out of the US are $10 a transaction.) The $60 is gone, and they refused to refund it. I was their customer for 10 years and they lost me over a stupid $60 fee. So I closed the account and have moved the money to my other account which is not FDIC insured. I will think about what to do next. But at least for now, I only have one cash account and all my money is in it, and it's not insured.