Saving: Emergency Funds

TL;DR: You need to save some cash for emergencies. So why not let that earn 2% or more for you instead of having it sit around?

No matter how risk-loving you are, anyone in the right mind would agree you need to keep around at least some cash for emergencies. But how do you do that optimally?

2 steps: Determine how much you need to save, and then decide where to put that money.

Determining how much to save:

While this part is entirely up to you, I think a good rule of thumb is 6-12 months worth of your expenditure. So in case (knock on wood) you or your partner loses an income stream, or a somehow uninsured medical emergency comes up, you won’t be scrambling.

How would you know how much that is? Good thing you’ve linked all your accounts to Personal Capital, so all you have to do is log in, click on Banking then cash flow, expense (at the top right of the section), switch the time scale to this year (or last year), and you’ve got a pretty good idea of what you’ve spent.

Deciding where that cash goes:

We’re not looking to invest this cash in some financial product, because the whole point is this is for emergencies. Here are some options.

1. You could keep it under the mattress. Honestly this is probably not the best option since you’re losing to inflation (think losing 2% a year), but I have to admit I do keep just a little bit somewhere like this just for piece of mind.
2. You could keep it in your regular bank, where you have a checkings and savings account. While this doesn’t have a high yield at all (this is pretty close to keeping cash in the mattress), but it is relatively easy to access and offers ease through a debit card if you need it in an emergency. It also offers protection if you perceive you are at risk of being physically robbed. Just make sure this is FDIC-insured*!
3. You could keep it in a high-yield checkings/savings account. My current choice is Marcus, as it offers one of the highest rates (2.05% APY), and it’s very easy to open an account. It is also FDIC-insured. There are other options: Heritage Bank offers a checking account with 3.33% APY (maximum of of $25,000 balance) and Popular Bank offers a savings account with 2.26% APY. However, because I don’t use them, I won’t vouch for them.

Happy Saving!

TheJKW

*The FDIC provides insurance of up to $250,000 in the event of a bank failing. While unlikely, this does happen (think about Lehman Brothers or Bear Stearns in the 2008 financial crisis)