A look at MONEY from all angles.

16 August, 2006

What is the best place to keep your Emergency Fund?

Lately, I have been thinking about where the best place to keep my emergency fund is. This came up because I was pondering the tax difference between a high yield savings account vs. a money market muni fund. Currently I have most of my cash savings at HSBC at 5.05%. I have some cash in my ETrade brokerage account which is invested in a Morgan Stanley Cali Municipal Bond fund with a yield of 2.47% which according to ETrade is a tax equivalent of 4.19% BUT this is assuming the highest tax bracket of 44.3%. I dont know if anyone has done the calculations but I would certainly like to know what works out the best. I know there are some formulas on investopedia but I guess I want to just ask people if they have done this calculation before? Where do you keep your Emergency Fund?


  • At 11:02 AM, Blogger Ms. MiniDucky said…

    Nowhere as sophisticated as investopedia am I: Just in Citibank's e-savings for now, will move to Emigrant when I hit my goal for the first fund. Reason being: if I'm going to need cash, it's probably going to be a fairly urgent need and access is key.

  • At 7:40 PM, Blogger Kira said…

    My plan is to have about $300 in a completely separate checking account (for basically instant access) and $2,000 in an ING account if something worse happens. Since my tax rates aren't very high anyway I don't think it's worth the few extra bucks I'd make on my paltry emergency fund to put it in a muni fund ;)

  • At 7:33 AM, Blogger Daniel said…

    We haven't designated an actual "emergency fund" yet, but all our savings are in ING. However, I am going to open that savings account at BofA with at least $300 in it. If you have a true emergency, waiting 2 days to transfer money from ING might not be an option, so I think it would be nice to have money in a bank that appear to be everywhere.

  • At 7:37 AM, Blogger Daniel said…

    Also, for the muni bond question. Maybe try looking at it this way. Suppose you are in the federal tax bracket of 25% and your California tax rate is 9.3%. If you earn $10 this year in HSBC (using about $200 of savings), deduct 34.3% for these taxes and you come out with $6.57.

    That same $200 in the Muni Fund that yields 2.47% would only get you interest of 4.94 and you would pay no taxes on it.

    The key is knowing your tax rates.

  • At 1:19 PM, Anonymous Anonymous said…

    You may want to consider laddering 28 day treasury bills which you can do online at

    Depending on your state's income tax bracket you may find this to be a higher after tax interest rate than the highest yielding money market accounts.

  • At 11:49 PM, Blogger Mr P said…

    Thanks for all the replies. I forgot to mention in my original post about the t-bills options also which I am considering. Although intered earned on T-Bills are not exempt from federal income taxes they are from state. So laddering them as anonymous suggested is not a bad idea as their yields are pretty close to HSBC/other internet savings.

  • At 8:43 AM, Blogger Chuck said…

    I use HSBC as well. The real advantage I see with that over some of the other online banks that offer higher rates (EmigrantDirect - 5.15%, Security Savings - 5.4%, etc) or Tbills is that I can walk into the branch 5 min from my house and withdraw the money immediatly if there is a true emergency. In the case of most online savings accounts, by the time I ACH the money into a checking account at minimum a few days will have passed.

  • At 8:03 PM, Blogger mOOm said…

    In an emergency I would use my credit cards to get the money instantly. I have an HSBC Online Savings account but I use it really to save up cash temporarily before deciding on investment objectives to apply it to. For example, I sometimes transfer money to Australia but it doesn't make sense to pay the wire fees till you have enough to send. My next source of emergency money is my trading account with Ameritrade. The stock trades I do in there usually last a week or so. I can access up to $40k from there without selling any long term investment. It would just stop my short term trading. So I guess that is the real "emergency fund".

  • At 1:34 PM, Blogger Lisa said…

    If it truly is an emergency, you may not have access to a bank. History repeats itself, most in this blog do not seem to remember our not-so-distant past in the banking industry.

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  • At 7:48 PM, Anonymous Luke said…

    Good question. I found there are huge site on online discussed about this tropic clearly. Specially you you find some sites,discussed a lot about high yield savings accounts.

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