I think most people overcomplicate their emergency fund location

For years I kept my emergency fund in a regular checking account because I wanted instant access. It earned basically nothing but I figured that was the price of safety. About 18 months ago I moved it to a high yield savings account at an online broker instead of my local bank. My bank pays 0.05% while the broker account gives me 4.2% right now. The transfer takes two business days to hit my checking which still seems fast enough for any real emergency. I had a roof repair last spring that cost $8,600 and the money moved over Thursday and paid the contractor Friday without any issue. Has anyone else found brokers making more sense than banks for holding cash that's just sitting there?

2 comments

2 Comments

kelly.keith5d ago

You say the transfer "takes two business days" but that's exactly the problem. What if your emergency happens on a Friday afternoon right before a holiday weekend? Now you're sitting there waiting 4 or 5 days for your money to clear while a contractor wants cash to start work. I used a brokerage account for my emergency fund once and got burned when my water heater burst on a Saturday and the plumber wouldn't even write me an estimate until he saw a certified check in hand. That 0.05 percent from a local bank starts looking pretty good when you can walk in and grab a bank check in 10 minutes flat.

jason9585d ago

Haha yeah nothing says "emergency fund" like waiting on a bank to open after a long weekend while your basement floods. That's like having a fire extinguisher that needs a two-day approval before it works. I remember my buddy had a similar thing happen with a frozen pipe on New Year's Eve, ended up paying a guy double just to show up and he had to borrow cash from his mom. Meanwhile the brokerage is sitting there earning 0.05 percent while your house turns into a swimming pool. Real genius move.