Emergency funds and inflation

[zebu]

Where do you keep your emergency fund so that it is 1) accessible and 2) keeps up with inflation?  Can you even have both?

Please educate me :)

[Denvergirlie]

My emergency fuind is in an ING account. I can transfer moneies between my bank account and ING account in a matter of a few days. I do keep some extra money in my checking account for immediate access as well as some cash at home too.

As for inflation, I haven't really felt much in the years I have had an emergency fund. My expenses have stayed fairly flat, so haven't adjusted my base emergency fund amount, but ING does pay 1% interest, so I guess that has gained me some monies over the years. But then again my emergency fund is based on 6 months of expenses. Sinc emy monthly costs haven't really gone up, I have no need to adjust for inflation all in all.

Hope some others will chime in too

[zebu]

Thankyou for you input!

You got me thinking... my biggest expense (mortgage) will stay flat, so maybe I don't have to worry too much about inflation if all I need it to do is to cover expenses in an emergency, which is the whole point of an emergency fund.  

I'm still saving up, but my ideal emergency fund is a pretty hefty sum, so I guess I struggle with just letting it sit while it basically loses value if it's not earning enough interest to keep up with inflation.

hmmm... 

[velochic]

Inflation is and has been basically flat in the recent past.  I wouldn't worry much about your emergency fund *beating* inflation.  As a general rule, it should keep up with inflation, but not beat it.  When inflation is higher, you'll see banks offering a little better rate on their savings.  There is no good way to beat inflation without risk.  And of course, that means investments, not savings.

That being said, of course there are increases and decreases in prices that are affected by the commodity markets.  Futures can temporarily make it seem like your grocery bill has gone up, or political upheaval in the ME will cause the barrel price of oil to be artificially raised for a bit.  But in general, inflation is not a huge problem right now.  In fact, most economists say that our threat is still stagflation or deflation.  I think the best place right now is with a local credit union in an FDIC insured account.

I'm not sure how much you're talking about for an emergency fund because it's based on your income.  "Hefty" sum is different for everybody.  I'd probably start thinking about doing something like tiered CDs or Money Market Mutual Fund or combination if your savings went above a certain threshold... say, $50,000 - $100,000 for example.  These types of accounts are also FDIC insured.  It also depends on your entire financial portfolio.  What are your taxable investments, what are your tax-exempt savings/retirement/pension, what is your age, your employment situation, etc.?  I think beyond a certain threshold, a combination is good to cover all bases and will earn you a little more than inflation.  This is just my opinion (based on some knowledge), but I'd look at some combination involving more than a simple savings account (but still utilizing FDIC insured savings vehicles) once you have more than 1-year of income (not expenses, but actual income).  That is what works for *us*, which is why I'm saying that.  It may not be the right solution for you, though.  Good luck!!

[seashells]

I'll be honest, while I've heard the terms stagflation and deflation, I don't really understand them.

But I do know that I look and see the prices of many things going up. A lot.

Examples:

- Gasoline prices and oil prices are soaring again, almost back to the 2008 peaks that was so significant that it was changing things (driving people in my non-cycling area to cycle, for example). We keep records of our heating oil purchases and they are definitely soaring.

- A good number of staple foods is going way up. I have been "going without" in terms of food struggling to keep it in budget, and I can't keep last year's budget anymore.

- Electricity is going up. Some of you get rates locked in for a year (but then when the term is up, ouch, you see the jump).

No, I don't think my 1.17% rate (or whatever it is) on my ING account is keeping up.

However, it doesn't make me think I shouldn't have an emergency fund, or that I should put it in investments. I don't have fancy reasoning for this; it's just that I know I need to save for an emergency, and there's just no way around it, even if I have to pay a "premium" of sorts for it.