A while back, I wrote about what to do with your emergency fund. I’ll admit, this is a total “first world” financial problem for me. I’ve never really had an emergency fund (I kept about 750 in savings when I was paying down debt) because I was busy spending everything that I earned (and more) or trying to pay back all that debt. Once I got my debt under control in 2013, we started paying a bit less down in debt and building up an emergency fund. My wife didnt want to be without one, and I agreed (since she was right, as usual) so we started one a while ago, and have been putting 400 per month in there every month, plus every single unexpected windfall that we have gotten since.
While I’d love to say that the constant contributions made the fund what it is and brought it to it’s current level of 10k (or about 3 mos expenses) that was totally not it at all. During this time, we received at least 7k in gifts or unexpected income (tax refunds, gifts and insurance refunds) that were placed directly into this account. It went from $0 to 10k pretty quick, if you ask me. Since we have reached our goal of 10k, we have lowered the contributions to this account significantly, and will just keep letting those smaller contributions go into the account until we get to ~6 months of fully funded living expenses, then stop contributions all together. This is something that we have both agreed should suit our needs perfectly, and as always if you have a less stable job (or a more stable job), you may need to do something different.
The reason that I’m writing about this is because we have had savings accounts with capital one 360 since 2009 or so. They are absolutely great to work with, and when they changed over from ING Direct, I noticed no difference except website colors. Things stayed the same for us and we were always very happy with them, I have been looking at moving our savings accounts for a while now for the following reasons:
- We have been getting KILLED on interest. Our accounts are earning something like .75% (at the time of this writing, June 2014). This has been going on for years, but I finally decided that it was time to do something about it.
- It’s time to consolidate. We have accounts at quite a few different banks, and we have deposits at 3 banks. It was time to pare down anywhere we could. Even though we would only be eliminating 1 bank from our constant account column, it’s still a lot.
Since we have been getting absolutely killed on interest rates for 5 years, I decided that now was a good time to do something about it. We didnt need the money for a house downpayment or any other “short term” need, so we could afford to take on a bit more risk with our savings accounts. There are no immediate projects coming up, nor any major expenses. Due to all of this, I decided that we could make the move from capital one 360 to Vanguard to our savings.
We have combined all of our savings accounts (House, Kid and Vacation accounts). This puts everything in 2 places. Our checking account and mortgage at one bank, and our IRA’s, 529s, Savings and taxable accounts at another one. (We did take half the balance of the kid account and move it to a 529 while we are (still) waiting on medicaid to decide if they want to approve us (they will – it’s statutorily required). We just want to keep cash on hand for those things just in case.
Where Did We Put Our E Fund?
So, after all the dust had settled, we had moved 1/2 of our emergency fund to a vanguards total bond fund (VBMFX) – and we kept the rest of our savings (1/2 of our emergency fund, as well as all of our vacation and house money) in vanguards money market fund (VMMXX). We moved 5k of our savings assets into the bond fund, and left the rest in the money market fund.
We are both aware that this subjects us to interest rate risk, but that can be mitigated by other strategies that I’m not going to go into here. What we were worried about was ease of access. We have about 3 months of our savings in a money market fund, which will get to our checking account in 3-5 days, well shorter than the 30 day credit card float that we would utilize for a true emergency. Even though the money market fund is above 1/2 our emergency, fund we are viewing that as an “initial” emergency fund. What I mean is that smaller emergencies will be handled solely out of the emergency fund, and (god forbid) we end up with an emergency that our money market can not handle, we dip into our stash of VBMFX.
We are planing on keeping a sizeable buffer in the money market account so that we will not have to draw down our bond fund at the wrong time, so we can protect the principal of that account.
We are also planning transfers from the money market fund into the bond fund at periodic intervals, so that we dont end up with too much in the money market fund. Right now, I’m estimating that we will do this once every 2 months. We are about half way to admiral shares with vanguard in our bond fund (10k) so once we get that, we will get even lower fees.
Is this the absolute 100% safest place for our emergency fund and other savings accounts? Probably not. All that being said, I think this will be a great solution for us, and will help us simplify our finances and make them much easier to read and use. Hopefully the ease of use will allow for more savings.
Readers: Where do you keep your emergency fund, and how much do you have in there?
(Obviously, I am LONG both tickers listed in the article.)