Bond fund vs. MMF for EF?

[Scanner]

If you want to insure the principal, you could instead of buying a bond fund. . .purchase muni bonds themselves for 1/3rd of your EF.

I know you have to be making over 150K as a family doc and your wife's job. . .so. . .you could use the tax break.

So, let's say your emergency fund is $30,000.

You could buy muni bonds with $10,000 of it and ladder them like CD's. Buy the insured kind so your prinicipal is guaranteed. You would just wait for the interest to come in.

If by some chance you needed to activate the entire $30,000. . .you drain the first 20K from savings/MM and then you can sell the bonds on the market (at a loss or gain) if you have to.

However, if they are laddered, the risk of that would be smaller.

I checked my brokerage (Schwab as of today) - here is a list of the yields for muni bonds

Municipal: AAA

3 month 2.19

6 month 2.22

1 year 2.71

2 year 3.05

5 year 3.37

10 year 4.15

30 year 5.34

So. . .just like CD's, you can ladder them. Let's say you ladder 2 year NJ muni bonds. . .at 3.05%. ..at your tax bracket. . .I'd imagine that's a 5.5% effective yield for your emergency fund.

[scfr]

I didn't mean to suggest putting it all in a bond fund. Too risky for an EF. I meant just a portion. So maybe 1/3 in a MMF, 1/3 in laddered CDs and 1/3 in a bond fund, or something like that.

If a wife may be allowed to weigh in on this discussion ...

If you like bonds, what about a ladder of individual bonds instead of the laddered CDs and the bond fund. If you own individual bonds and the plan is to hold them to maturity (laddering them so that some $ would be coming in each month or every few months in event of an emergency), then you do not need to worry about the bonds' values only the yields and maturity dates. Of course, you have the costs of purchasing the bonds, so it would depend on the size of your EF.

Needless to say, this suggestion applies to a "long-term unemployment or death" EF and not a "car repair or medical bill" EF, but I know you know that.

[scfr]

If you want to insure the principal, you could instead of buying a bond fund. . .purchase muni bonds themselves for 1/3rd of your EF.


However, if they are laddered, the risk of that would be smaller.


So. . .just like CD's, you can ladder them. Let's say you ladder 2 year NJ muni bonds. . .at 3.05%. ..at your tax bracket. . .I'd imagine that's a 5.5% effective yield for your emergency fund.

Ah Scanner ... Great minds think alike! (and post at the same time)

[Scanner]

Ah Scanner ... Great minds think alike! (and post at the same time)

Then, why isn't everyone burying silver in their backyard?

[jIM_Ohio]

If a wife may be allowed to weigh in on this discussion ...

If you like bonds, what about a ladder of individual bonds instead of the laddered CDs and the bond fund. If you own individual bonds and the plan is to hold them to maturity (laddering them so that some $ would be coming in each month or every few months in event of an emergency), then you do not need to worry about the bonds' values only the yields and maturity dates. Of course, you have the costs of purchasing the bonds, so it would depend on the size of your EF.

Needless to say, this suggestion applies to a "long-term unemployment or death" EF and not a "car repair or medical bill" EF, but I know you know that.

Yeah- I have looked into doing this with I bonds. the taxes would not be due until maturity, but the durations (20 years) make this more of a nuisance.

[Broken Arrow]

Then, why isn't everyone burying silver in their backyard?

Genius is far rarer.

[Merch]

Money market account that is true money market accounts will not dip below $1.

Enhanced cash funds can and have. They invest in SIVs.

It sounds like I'm splitting hairs but these are 2 different type of funds. Like IG vs HY bonds.

And bond funds due have risk. And munis have a lot of risk, especially insured munis and ARS. So you have to be very careful there.

The only way to preserve capital is savings, mm accounts, and cds. And I vote for high yield savings - account FIDC insured (principal will not be lost), earning more then MM accounts, more liquid then cds.

But with the object is to get returns and not perserve capital for an EF, why not buy some Euro Bundles or get some ARS (munis earning about 9%-10%) or Arbritrage US CDX with series 8 ITRAXX? Too risky?

But bonds and munis aren't? These are the most volatile FI markets i have seen. US rate can't get much lower. The 75 bp drop, everyone was expecting a 100 bp drop. What happens when rates stop falling and start climbing? Or MBIA gets downgraded or goes out of business? What happens to munis?

I am just saying bonds are not riskless and an EF should be riskless investments.

Any way, that's all I got to say.

[petertparker]

Hi to everyone



Plz tell something about MMFfor EF

[MaxPowers]

One thing I don't understand is why people put money in CDs that have rates like 2 or 3% when there are many savings and checking accounts out there that offer 4-6%. Like my checking account offers 5% (was 6)
So what are you earning when you put money in a 3 month CD that gets 1%?

[tripods68]

MaxPowers,

Really???What bank that you know that offers 4-6% on savings and checking. Send us a link.

[jIM_Ohio]

One thing I don't understand is why people put money in CDs that have rates like 2 or 3% when there are many savings and checking accounts out there that offer 4-6%. Like my checking account offers 5% (was 6)
So what are you earning when you put money in a 3 month CD that gets 1%?

The goal of an EF is to keep money safe. Period. Questioning the return on the EF is misguided.

If the money in the CD is not an EF, know that some banks give favorable treatment to clients which keep assets at the bank. Brokerage services, safe deposit boxes, discounted loans or other perks which might not be clearly visible.

In general, I do not chase returns on cash. I like keeping my investments simple and moving money from bank to bank to earn a % here, then a .5% there is not worth my time.

[MaxPowers]

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Great site with high CD rates, checking, savings, MMFs, and bank news.
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I bank with United Heritage Credit Union. Open to residents of Austin TX.

[Ima saver]

My local bank is offering an interest rate of 3.19 % on all checking accounts with a balance of at least $1000.

[disneysteve]

One thing I don't understand is why people put money in CDs that have rates like 2 or 3% when there are many savings and checking accounts out there that offer 4-6%.

1. I'm not sure there are "many savings and checking accounts" earning 4-6%.

2. As Jim said, many people don't want the hassle of moving money around every time someone else offers an extra 0.1% interest.

3. Most folks aren't all that financially savvy. They aren't aware of what is available and don't know how to find those better deals.

4. Some of those deals have strings attached. For example, you might need to set up direct deposit to the account to qualify for the rate or you might need to make a certain number of debit card transactions each month.

5. Also as Jim said, there could be other factors. My mom has a non-interest bearing accout that she opened because it gave her a huge discount on her safe deposit box rental. She doesn't keep much in there. Just enough to get the discount.


6. Many people are still uncomfortable banking online. They simply don't trust it. They want to be able to walk into their local branch and do business with a human being even if that means earning a lower interest rate.