It's my understanding that high yield savings accounts are still the best place for an emergency fund. A tbill might net you more money, but if you're still 8 months from maturity, how does that help you at all?
HYSA are also FDIC insured which is no joke. Money market funds are vulnerable to "bank runs" the same way a bank is. There have been times, like in 2008, where you were not able to actually pull all your money out. https://www.investopedia.com/articles/economics/09/money-mar...
I guess technically there is always a risk of 100% loss but in the case of the HYSA that would happen if the United States dissolves. With a money market all you need is a bank run.
Yep. I was unfortunate enough to get stuck in a money market fund that “broke the buck” during the financial crisis. It took over a year to liquidate, and I think I still lost around 2% of the principal.
Definitely not a place to stick money you absolutely need to be able to pull out soon.
I use SPAXX at Fidelity. It is mostly government paper, and while not explicitly FDIC insured, I am confident of it's solvency in almost all situations due to new money market regs (that should prevent the most common MMF products from "breaking the buck").
If you are incredibly conservative, you could keep enough cash for 30-90 days in an FDIC deposit account, with the rest in money market funds that will take time to resolve solvency issues.
Vanguard money-market funds can be exited at the close of business any day: bonds may comprise the underlying assets, but you don't actually have to wait for maturity. The main risk with these funds is that you don't get FDIC insurance. Historically this has not been a problem (for Vanguard), but past results etc.
ETA: in 2008 there was an instance where one fund "broke the buck", but the Fed stepped in and backstopped it.
Credit cards are the best place for an emergency fund. You still all your cash in US-Treasuries, gaining 5+ % interest with no federal tax, and as secure as anything in the world. Then if an emergency comes up, use your credit cards, and you have 30 days to pull money out and pay for it, without losing any of your interest.
Unless your emergency comes during an economic downturn or credit crunch, or the issuer gets wind that you've lost your job, or really anything that lets them change the terms underneath you. And they'e inevitably reserved the right to do so.
It's rare to find a revolving credit line that you can actually know will be there when an emergency comes -- canceled cards, reduced limits, suddenly prohibited cash advances, exploitative rate changes, etc are all things that do happen during tighter economic times and just haven't been widespread in the last decade or so because money was cheap. Be careful not to be conditioned strictly on those freewheeling days that are now ending!
You can live the way you describe, and many of us have gone through periods of needing to rationalize it and do so, but with a clear head it's not something I would characterize as "the best blace for an emergency fund" because you just can't really trust it.
If you buy T-bills through a brokerage, you can easily resell them on the secondary market using the same brokerage. The market price climbs as maturity approaches, so you typically capture yield in proportion to how long you held the T-bill.
Most people posting here have enough unused credit card "headroom" to get them through a month; so the main thing for an emergency fund is that you can get the cash out of it with low or no cost within that month.
Some use bond funds to do it, some use bond or CD "ladders" - buy a bond expiring in 12 months that is 1/12 your emergency fund each month, and in a year you'll have a rolling "self built fund" that you can get 1/12 of every month with no penalties.
Bogleheads forum has tons of discussion around these kinds of things.
So putting my money into a HYSA isn't a good place for an emergency fund? It will take 2-3 days to transfer (without fees).
I've never understood this mentality. I've got a credit card with nearly 6 months of expenses as a limit, most of it not used because I pay it off month to month.
I'd be more worried about the tax implications of selling ETFs and such than the 2-3 days of wait to transfer.
Maybe I lack imagination, but I can't think of anything that I'd need my entire emergency fund immediately. Throw the emergency cost onto a credit card, and transfer the money from the emergency fund to pay off the bill. I guess that doesn't work in some other countries where credit cards aren't as prolific as the US.
For what it's worth, Wealthfront's HYSA offers free same-day transfers, at least to major banks (they just need to support RTP transfers, which many do). But I agree with your point that an emergency fund is fine as long as you can access it within a few days.
> It will take 2-3 days to transfer (without fees).
This depends on the bank. If you have a checking account with the same bank, the funds can be available right away. The standard withdrawal frequency limits still apply.
I think this is one of those places where mass-market financial advice is aimed at people who are bad with money and might not be able to float a month of expenses on credit.
I'm not sure I've ever had a nontrivial expense in the US that simultaneously couldn't be paid on credit and wasn't known for weeks in advance either. I would expect any no-credit charge in excess of about a dinner bill to be announced at least a week in advance, implicitly through an invoicing process at the very least, and I would frankly have reservations about whether any vendor who didn't have a way to handle this was really a legitimate business.
Even if that's not an option, your broker is probably fine with floating you a sum of cash matching your recent MMF sale amount as overdraft or margin at a price of somewhere between "we've already factored it into our fees as a cost of doing business" and <0.05%/day of the loan amount anyway, because overnight loan alchemy is a well-understood problem and the bread and butter of retail banking.
Want emergencies can you think of which would require such fast access to cash? For example if you need to replace a big ticket item (car, house...) which has been destroyed it will take longer than that to find a replacement. Most short term emergencies requiring something like rent car, rent living space, flying somewhere can be handled by putting the cost on a credit card.
I don't think buying a car or house qualifies as an emergency. Having access to one might be, but your emergency fund generally shouldn't be "buy a spare house" large - that's what insurance is for.
