So I need another place to store the money... but this is my emergency fund, as well as the fund that covers major expenses (home repairs, medical bills, new car, etc.) so I need to be able access it, or at least a portion of it, pretty easily & quickly. I could use part of it to pay off my student loans but they are only 2% interest and we only have a couple of years left on them anyway. Plus if I put extra toward student loans or mortgage, we won't have the emergency fund! My job is a bit unstable so there's a chance we may need to live off that money in the next year or two.
All the CD's I've found aren't offering more than 1% interest. I have 2 banks and neither offers more than 1% interest right now for any kind of savings, and the local banks are offering only 0.25%! I really don't know enough to be comfortable with stocks and investing and stuff. I'm pretty clueless about what to do with this money, but I realize it's ridiculous to have such a substantial sum sitting there making 0.8% interest.
Yeah, I get cranky about this. The rock bottom interest rate is set up to encourage people to use debt (why not, it's cheap) and discourage saving (letting a pile of money sit and earn 0.8% is crazy). And it's not going to change soon.
It's your emergency fund, so you want it liquid. If you lock it in a CD you would lose fees for cashing it in early if you need to. If you put it in the market you might need it when values are low. You could take those risks anyway, and it wouldn't be the end of the world, as long as you would feel better about that than the savings account. Personally I feel better just having the predictability of the savings account, and I don't feel like I've "lost" anything if I need to make a withdrawal.
I haven't come across a better solution, myself. I've resigned myself to the low rates and consider myself lucky to have an emergency fund at all. I have also started the task of paying down my mortgage (5.625%), which is a pretty solid way for me to "invest" my money at this point - but I still have the emergency fund.
Since your job is not solid, I think you're right to hang on to it instead of using it to pay off debt. If you feel more solid later on, you could either pay off the student loan and have the security of less debt obligation each month (plus the ability to save that amount each month) or you could start working on the mortgage in earnest and enjoy the higher "return" (so to speak) on that. But for now, I'm in your boat and have resigned myself to the interest rate. Emergency funds aren't investments per se, and that's ok. They are still smart moves.
I too remember earning over 5% on an ING account (and also when I was a teen, at a local bank). Those were the days.
Homeschooling mama to 6 year old DD.
Wow, is this supposed to be a general thing?
I just checked my local credit union's rates. I could get 0.15% on $10,000, or if I deposited $100,000 or more I could enjoy 0.3%. The poor souls with only a couple thou will get 0.05%. Ugh. Better off with ING.
Homeschooling mama to 6 year old DD.
I have no idea. We have our checking, savings and mortgage through them though so that might be it.
obstruct livery vehicles
Laohaire, I'm glad I'm not the only one frustrated by this. I really want to get ahead. We're just coming off a 1-year unemployment (DH) and I'm so discouraged that I can seem to find any way to meet my goal -- which is to be a full-time SAHM. (I WAH 20 hours a week and hate my job). Unless I can get a higher yield, the only other way I can get ahead is if we could refinance our mortgage, but that doesn't seem to be an option for us. I guess working on paying off the mortgage early is the best & only option to get our money working harder... but it doesn't really get me closer to my goal of being a SAHM. Well, maybe when DS is 20 lol, but by then it's kind of pointless!!
What are you working on right now? I mean, money over and above bills, is it going toward your emergency fund still, or repaying debt, or you don't have any extra money over and above bills right now?
If you are still padding your emergency fund, you are getting ahead. Do you have an end in sight?
I think that we should really see the EF for what it is, and let go of the assumption that it has to be an investment. It's not. I am sure you and I would feel a lot better if it at least kept pace with inflation, but even so, it's serving its purpose.
The only thing I would add to that is that we can't just grow our emergency funds to infinity. At some point you have to accept that it is big enough and then go on to something else.
Homeschooling mama to 6 year old DD.
DH and I were just talking about this last night. A few years ago I was getting 5% on an ING account when I didn't have much money saved at all. Now that we've got a 6 month emergency savings and a few thousand set aside for house repairs, we get .84%. So sad. There's nothing else out there though.
Me: Sarah, married to: J, mommy to: C (8/10) and E (11/12)
I just finished my taxes & am extra-discouraged because not only do we owe, it looks like we have to pay a penalty for underpaying!! (Because DH didn't fill out the form to have taxes taken from his unemployment & he was unemployed for longer than we expected). Everyone else is getting thousands back in refunds and we owe and we can only get 1% interest rates and we can't take advantage of low refinance rates and DH & I never see each other and we're both exhausted and I'm crazy stressed. I hate being in this income bracket (lower-middle class) in a very high COL area and no way out. We make too much to qualify for any assistance or tax breaks but too little to really be comfortable. We saved up that emergency fund by taking extreme measures, we really never spend any 'fun' money and skimp on essentials just to save.
I'm sorry, it sounds like you are in a frustrating time financially.
The good news is that you ARE getting ahead. If you feel like you've now saved enough to have an adequate emergency fund, YAY! You've just achieved something major!
What do you plan to do next with the "extra" money? I'll tell you what I'm doing (I too just completed an emergency fund I am comfortable with): we rewarded ourselves with the "extra" money for one month, just for fun. It wasn't a ton, to be honest, but DD got a nice toy, DH and I spent about $20 each, and we also have $200 that we can use for 2 nights "camping-ish" trip this summer. Then we are going to starting paying down the mortgage. I have student loans too, but at 2.whatever percent versus 5.625% mortgage, I just don't think it makes sense to put it in the student loans.
Or, you might consider investing that extra money into your retirement. Or a combination.
Or, if you're not happy with your living situation, maybe this could help free you? We're lower middle class too but we live in a lower middle class town, and that makes a big difference.
Anyway, I hope it helps to realize that you are totally getting ahead. You are WAY ahead of most Americans - you probably read the thing about most Americans not being able to cover a $1000 emergency. Pat yourself on the back, you've done great.
Homeschooling mama to 6 year old DD.
Yes, I totally need to keep this in perspective!! I get frustrated because I feel like we live as if we're worse than dirt-poor, all my friends seem to think I'm poor or something, I am a minimalist I guess anyway so it's not that big a deal but it was really hard work saving up that much money and I wish I could do more with it!
I like the idea of rewarding ourselves a bit. I also like the idea of paying down the mortgage. There are also a few things we really could use -- a new (used!) couch for the office, which I'm sure I can get cheap, and I really really really want a fence & patio in our yard, which is a much larger expense. Maybe I just need to get out of this "save every last cent" mentality and start budgeting/saving for specific items. I have issues with spending money (oddly recently realized it may be connected to my eating issues??? lol grocery shopping is a blast don't want to spend or eat anything!!) Maybe we can start a fence fund and a 'fun money' fund and put a bit extra toward the mortgage. That won't help me be a SAHM but neither will saving a few extra bucks at 0.8%, right?
Mother of two spectacular girls, born mid-2010 and late 2012
I checked our credit unions and the highest interest savings account is .5% and then .35%. The CD rates are similar.
I'm sticking some into stock - my emergency fund is at a decent amount, yet too much to just sit. I decided I can take half of the emergency fund and move it in to stock and then rebuild the emergency fund before the end of the year. And continue to grow long term savings like that, as my job proves stable. My conditions are to take a chunk that I can replace before the end of the year. The stock is easy to cash out if I need it. (I'm encouraged by this as a recent IRA stock has gained 8% in three months, so I figured a portion of my emergency fund can earn $ too)
Have you looked into a high-interest checking account? I have one at a small local bank that offers 2.51% up to $50k if you meet certain criteria. The rate is adjustable, and started at 4.01% before the housing bubble burst. The "criteria" isn't that hard to meet: electronic statements, 8 debit transactions in a month, and a direct deposit or automatic bill pay a month. I use mine for my emergency fund, so I direct deposit money from my paycheck that I would have put in there anyway, and occasionally treat myself to a coffee or snack at the work cafeteria and put all its $1-2 goodness on the debit card. I've even been known to put gas in my car $1 at a time. Even if I don't meet all the criteria for the month, I still earn 1+% interest (I don't remember exactly).
There are several banks in my area offering similar high-interest checking accounts, all smaller local banks. Maybe something to look into?
Jen - 29, part-time LDRP RN and Birth Consultant. DH - 33. Married since 2006. 3/09. DD 2010. Expecting a surprise new one in May 2014!
Great topic. I have watched my saving account drop almost monthly so now its like below 1% its sad every month it makes less and less. If I had more I would put it into a cd but even the cds are the same interest right now so it doesn't matter.
I have actually started researching reliable funds within my Roth IRA and moving the money into there. Contributions (but not interest) can be withdrawn without penalty. I have a strong emergency fund because I won't move it all, but I feel pretty good about the decision. Funds have been doing very well for the past three years. And odds are the money will be in there for the long term. If I buy a house, I will increase the savings, though. What are you going to do?
We do the "high interest" checking. It's not that great and for us the hoops are annoying but doable. The penalty for removing funds from a CD are not so high that they should discourage using them. I mean, if the money is used for the emergency, then *if* you take it out before the CD matures it will not be the end of the world. Often they have odd-month special rates, like 11- or 13-month CDs for higher rates. Some you can even bump if interest rates go higher (hah! like that's likely!) So, I wouldn't dismiss a CD (or several) out-of-hand as a possibility. A money market account is another idea.
The reason savings interest is so low is that interest rates are low in general. Good news if you are purchasing a house or refinancing your mortgage. In fact, I would look to see if this is a possibility. Our mortgage is currently 6.25 percent. We chose not to refinance for two reasons: we are selling soon, and even if we weren't the down payment on our house was so high and the actual loan amount so low that the difference would be no more than $100 per month, if that. But just because it didn't look good for us doesn't mean it isn't a great idea for some others. How is your mortgage? How much longer are you expecting to pay it down? What is your interest rate? Does it make financial sense to refinance, not to get more money out of the house (bad time for that with house prices falling) but simply to refinance the original loan, plus the fees for the refi. Usually the total savings will come in about 2 years or so depending on the amount of the loan and the fees. In the meantime you could reduce your monthly mortgage payments.
Just something to think about. I would not in your case start putting funds into places where they cannot be retrieved. Not the time to pay down your mortgage!
I think I would start setting aside some money to begin some conservative investments. The funds on these can be liquidated within a week but they might not be the best thing to do with your cash right now. Also, if you need it, a Health Savings Account, while the interest rates are no better than a normal savings account, can be written off on your taxes. I'm just learning about these since our insurance needs have turned belly up (and gagging) in the last few months and am still learning about how they work.
We are in a similar boat, trying to find ways to conjure up more or free up cash to have a little more give in our finances.
Give me a few minutes while I caffeinate.