Emergency Fund Investing

Where to Invest Emergency Fund?

I have saved up six months' worth of savings as an emergency fund. Where should I put the money now? Presently, it is in a regular savings account that is paying about 2%.
Andrea in Brooklyn, New York

Split It 50/50

Put 50% in an online savings account like ING, which is currently at 4.4%, and the other 50% in a short term CD if you can get a better rate on a six to twelve month CD. Continue to add to the amount in the savings account.
Debbie

Comparison Shop at Bankrate.com

If you go to Bankrate.com and access the online banking sites, you will do better. We have our emergency funds with Emigrant Bank, which is currently paying 5.05%. They are very easy to deal with. We make our deposits by transferring funds from our checking account to our savings account. It only takes $1 to open.
Cheryl

Keep it 'Liquid' but Growing

The emergency fund needs to be invested in a money market account with check writing privileges. This money needs to stay "liquid" so it is available for emergencies but still grow at a rate greater than 2%.
Glenna in Broken Arrow, OK

Laddered Approach

My suggestions for the reader who asked about the investment of the "emergency funds" are as follows:

1. Get a CD rate sheet from your financial institution, and divide your money into a number of portions that would allow you to meet the minimum investment requirements. And then stagger the maturity dates on the CDs. (Ladder the CD maturity dates.) If an emergency occurs, you can cash them in. You may pay a penalty, but compared to the low savings rate, this may not be too bad. Often, you can withdraw the interest earned on your CD without it being subject to the penalty. Some banks also allow you to borrow against the CD, allowing for only a partial "withdrawal" of the money.
   
   
2. If this seems too much to handle, try the US Savings bonds. I like the inflation protected bonds, but the regular bonds are still good. Again, subject to penalties if you cash early, but worth the small risk, especially compared to the small savings account interest rate.

See What Dave Ramsey Has to Say

Read the book The Total Money Makeover by Dave Ramsey for great advice on this and many other financial questions. Your local library may have a copy or they can reserve one for you through interlibrary loan.
Lorrie

Always Do Your Research

Comparison-shop for Money Market funds. Several years ago, I found that my bank had the lowest rates, and a bank a block away from it had the highest rates. I moved my money to the other bank. Recently, I re-examined rates and discovered that while the bank I was using offered 2% for their bank-based account, they had 5% for their Internet account. In the end, my best rate was through the investment company where I have my IRAs.
Marjorie

Start an Online Account

Look into an online account, such as www.ingdirect.com or www.edwardjones.com. It was the best move ever for our emergency savings. The money is transferred through our checking account and into our online savings. If I need the money, it takes about three days, which helps curb those impulse purchases. Also the interest rate is much higher than our regular savings account. Can't go wrong!
Melinda in Idaho

Turn Your Emergency Fund into Something Much Bigger

If you are like me and have a tendency to find a lot of "needs," the CD accounts are your best bet. Take half of your savings and open a CD account. This will pay double to triple a regular savings account in interest, and since they are mostly shorter term, they can still be used just in case of an emergency. Continue to save! Do this every time you reach your 6-month goal, and before you know it, your savings won't just be an emergency fund, but also retirement fund, a vacation fund, maybe a remodeling fund, and a new car fund!
Sheila

Take the Next Step

• Take advantage of all the free sites above. Do your research and make the best decision for you!
• ING DIRECT makes $aving money simple! Open your account online today and start earning variable APY. No Fees and No Minimums!
• Give a cheer for our readers' awesome tips! We appreciate them and want you to send us your tips on any money issues. Mailto:Tips@stretcher.com

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