Where's the emergency?

[tonyreptiles]

Hi All,

It's been a while since I was a regular here. Indeed, it wasn't really 'here' per se, but over on the old TMF forum.

As such, I'm a bit rusty when it comes to the general consensus about what to do with our emergency fund. It's about enough to keep us comfortably for two years and, at the moment, is sat in a near-zero interest bank account. Back when I was last up to date with recommendations we were compelled to put it in a bank account so that it was instantly accessible if said emergency ever transpired, but that was back when bank accounts paid a bit of interest.

We had wondered (Pre C-19) about putting the money into a peer-to-peer lending situation, but since the pandemic, it seems that many are cutting rates as borrowers are defaulting on their payments.

What, then, should we do with our emergency fund?
It needs to be easily accessible (within a day or so), and ideally not shrivelling up under inflation in a zero-interest account.

Any ideas? Where's your nest egg?

Many TIA.

TR

[Itsallaguess]

What, then, should we do with our emergency fund?

It needs to be easily accessible (within a day or so), and ideally not shrivelling up under inflation in a zero-interest account.

Any ideas?

Where's your nest egg?

We have a chunk of our cash that we might need quick access to in Premium Bonds.

The 'interest rate' has an element of luck to it, of course, but I actually look forward to the monthly drum-beat of the draws, and it provides a little spark of excitement in that particular element of my savings and investment plan.

I accept that I can't afford to try and shoot the lights out in terms of expected returns from this cash TR, as if I began to try to do that, it's likely to add an element of risk to it that I will perhaps live to regret if I ever do need to access it in an emergency, so as long as it ticks over and gives me around 1% a year, with an additional small chance of a jackpot, then that's good enough for me. It's Government backed, and it's going nowhere -

https://www.moneysavingexpert.com/savings/premium-bonds/

https://www.nsandi.com/premium-bonds

Personally, peer-to-peer is barge-pole territory for this type of cash.....

Cheers,

Itsallaguess

[tikunetih]

Here's the best place to look:

https://www.moneysavingexpert.com/savin ... -interest/

Marcus account is efficient and reliable.

[tonyreptiles]

What, then, should we do with our emergency fund?

It needs to be easily accessible (within a day or so), and ideally not shrivelling up under inflation in a zero-interest account.

Any ideas?

Where's your nest egg?

We have a chunk of our cash that we might need quick access to in Premium Bonds.

The 'interest rate' has an element of luck to it, of course, but I actually look forward to the monthly drum-beat of the draws, and it provides a little spark of excitement in that particular element of my savings and investment plan.

I accept that I can't afford to try and shoot the lights out in terms of expected returns from this cash TR, as if I began to try to do that, it's likely to add an element of risk to it that I will perhaps live to regret if I ever do need to access it in an emergency, so as long as it ticks over and gives me around 1% a year, with an additional small chance of a jackpot, then that's good enough for me. It's Government backed, and it's going nowhere -

https://www.moneysavingexpert.com/savings/premium-bonds/

https://www.nsandi.com/premium-bonds

Personally, peer-to-peer is barge-pole territory for this type of cash.....

Cheers,

Itsallaguess

That's one of the options we were considering so it's reassuring that's what you do. I take it you can haul the cash out at a moment's notice?

Incidentally, we were also thinking of doing the same with the money we save throughout the year to pay our annual tax returns. (We're self employed.) I guess there's no better option in that instance?

Thanks

TR

[Itsallaguess]

We have a chunk of our cash that we might need quick access to in Premium Bonds.

The 'interest rate' has an element of luck to it, of course, but I actually look forward to the monthly drum-beat of the draws, and it provides a little spark of excitement in that particular element of my savings and investment plan.

I accept that I can't afford to try and shoot the lights out in terms of expected returns from this cash TR, as if I began to try to do that, it's likely to add an element of risk to it that I will perhaps live to regret if I ever do need to access it in an emergency, so as long as it ticks over and gives me around 1% a year, with an additional small chance of a jackpot, then that's good enough for me. It's Government backed, and it's going nowhere -

https://www.moneysavingexpert.com/savings/premium-bonds/

https://www.nsandi.com/premium-bonds

That's one of the options we were considering so it's reassuring that's what you do. I take it you can haul the cash out at a moment's notice?

There's a section of the above NS&I site that shows the cash-withdrawal options for the various types of accounts that they provide -

https://www.nsandi.com/how-long-does-it ... al-payment

I've just used the online 'payment schedule' calculator that's on the above link, and when it asks me when I'd be giving instructions for withdrawal for Premium Bond cash, I said 'By 8pm on Wednesday 13th of May', and the calculator told me that if that was the case, then the cash would be in my account on Friday 15th of May, which is good enough for my needs.

Weekends might get in the way of the two-day mid-week turnaround, so you might want to have a bit of a play with the above payment-schedule calculator if an additional day or two is going to be critical for that sort of request.

Incidentally, we were also thinking of doing the same with the money we save throughout the year to pay our annual tax returns. (We're self employed.)

I guess there's no better option in that instance?

It's difficult to be honest TR, as the way each of us will define 'better' might be for slightly different reasons. There might be some savings accounts that give better rates when you pay amounts of cash in every month, but it's not an area that I've investigated personally, as I don't tend to save much cash beyond what's already there for my emergency needs.

Hopefully if such 'regular savings' vehicles still exist, and it's something that might interest you, then someone who does know more about that side of things can still help you out on this thread.

Cheers,

Itsallaguess

[tonyreptiles]

That makes sense.

Thanks!
TR

[mc2fool]

As such, I'm a bit rusty when it comes to the general consensus about what to do with our emergency fund. It's about enough to keep us comfortably for two years and...
:
It needs to be easily accessible (within a day or so)

Why does all of it need to be accessible within a day or so? If it's to keep you for two years then you could, at its simplest, put half in an instant access account and the other half in a one year fixed a/c, which will become available as the first half runs out and will get you a bit more interest along the way.

Or better, you could put 3 months living costs into a sequence of 2 year fixed accounts spaced such that one matures every three months. That way you'll always have living costs money becoming available as needed but be earning 2 year interest rates on it all, and if you don't need it you just roll that 3 months worth into another 2 year account.

Or use a mixture of instant access accounts, notice accounts (e.g. 90 day notice) and rolling fixed term accounts of different lengths at various spacings to guarantee that you'll always have money becoming available as needed but be getting a decent (well, better than zero!) rate of interest on it. You can make it as simple or complicated as you like....

[Parky]

As such, I'm a bit rusty when it comes to the general consensus about what to do with our emergency fund. It's about enough to keep us comfortably for two years and...
:
It needs to be easily accessible (within a day or so)

Why does all of it need to be accessible within a day or so? If it's to keep you for two years then you could, at its simplest, put half in an instant access account and the other half in a one year fixed a/c, which will become available as the first half runs out and will get you a bit more interest along the way.

Or better, you could put 3 months living costs into a sequence of 2 year fixed accounts spaced such that one matures every three months. That way you'll always have living costs money becoming available as needed but be earning 2 year interest rates on it all, and if you don't need it you just roll that 3 months worth into another 2 year account.

Or use a mixture of instant access accounts, notice accounts (e.g. 90 day notice) and rolling fixed term accounts of different lengths at various spacings to guarantee that you'll always have money becoming available as needed but be getting a decent (well, better than zero!) rate of interest on it. You can make it as simple or complicated as you like....

My credit card is my emergency purchasing power. It's paid off every month and usually has £4000 -£5000 credit available. I have at least a month to get money from somewhere to pay it off, e.g. ISA or NS&I. Why do you need instant cash?

[mc2fool]

Or use a mixture of instant access accounts, notice accounts (e.g. 90 day notice) and rolling fixed term accounts of different lengths at various spacings to guarantee that you'll always have money becoming available as needed but be getting a decent (well, better than zero!) rate of interest on it. You can make it as simple or complicated as you like....

My credit card is my emergency purchasing power. It's paid off every month and usually has £4000 -£5000 credit available. I have at least a month to get money from somewhere to pay it off, e.g. ISA or NS&I. Why do you need instant cash?

Indeed, you could throw a credit card or several into the mix. That is, however, only good for a month and a bit, so to last longer you'll need at least a rolling set of 1 month fixed accounts or a 30 day notice account or similar (assuming you don't want to go into debt of course). Do NS&I have 1 month fixed or 30 day notice accounts? I didn't think they did....

Oh, one other variant I forgot to mention is accessible fixed term accounts, e.g. a 1 year fixed term account that allows instant access with the loss of nn days interest (although I don't see so many of those nowadays).

[uspaul666]

Please don’t put it in p2p unless you are an expert. The sector is pretty much collapsing. My “quick” (normally instant) access account has turned into a 2 year notice account.

[fca2019]

Also recommend Marcus instant access account. Marcus and Investec have good one year fixed rate as well. (Agree avoid P2P.)

[kempiejon]

Another vote for premium bonds, tax free, gov backed, not part of your saving allowance and easy access online to linked account. If I need to take cash out I chose the option to withdraw following the next prize draw just in case I'm lucky, like Itsallaguess those monthly prize days are fun. I usually have a few months expenses in current accounts too and do/did regular savers, last year they were 5% and this year 2%.
Don't do p2p, luckily I spent much of last year winding down my p2p from a few thousand to a few hundred and my last few hundred is locked up due back in the next few months.

[GoSeigen]

Hi All,

It's been a while since I was a regular here. Indeed, it wasn't really 'here' per se, but over on the old TMF forum.

As such, I'm a bit rusty when it comes to the general consensus about what to do with our emergency fund. It's about enough to keep us comfortably for two years and, at the moment, is sat in a near-zero interest bank account. Back when I was last up to date with recommendations we were compelled to put it in a bank account so that it was instantly accessible if said emergency ever transpired, but that was back when bank accounts paid a bit of interest.

We had wondered (Pre C-19) about putting the money into a peer-to-peer lending situation, but since the pandemic, it seems that many are cutting rates as borrowers are defaulting on their payments.

What, then, should we do with our emergency fund?
It needs to be easily accessible (within a day or so), and ideally not shrivelling up under inflation in a zero-interest account.

Any ideas? Where's your nest egg?

Many TIA.

TR

You probably won't like this answer TR, but I think now is not the time to deposit your cash with the bank but rather to buy the bank's shares.

Why?

Last year Lloyds Banking Group returned almost £4bn to its shareholders. Today, you can receive LBG's shareholder distributions by buying the shares for just £22bn (the bank's market cap). Well not all of them but as many shares as you want. Do the maths. (Annual income rate = 4bn/22bn x 100%).

2007-8 was a good time to keep cash in the bank. You could get a 3 to 5 year account paying 6%pa or more in a government-owned bank. Now, you get practically nothing.


Now I know this is heresy because Cash is Safe and all, but you could do this: put 50% of your cash in a bank, any bank, it really doesn't matter. Then use the other 50% to buy shares in that bank. If I am proved utterly wrong and the shares get completely wiped out you still have half your cash. If I'm right, I bet you get a better return than having 100% of your cash in a 0.5% account.

Good luck whatever you do.

GS

[XFool]

My credit card is my emergency purchasing power. It's paid off every month and usually has £4000 -£5000 credit available. I have at least a month to get money from somewhere to pay it off, e.g. ISA or NS&I. Why do you need instant cash?

Interesting concept for a situation like this. If you have a sufficiently large amount in Premium Bonds to reasonably expect a monthly income, use a credit card to smooth out any gaps in the expected income. Would work best, i.e. cheapest, if you underestimated the average expected income from PBs.

Interesting calculations to make there.

[tonyreptiles]

Hi All,

It's been a while since I was a regular here. Indeed, it wasn't really 'here' per se, but over on the old TMF forum.

As such, I'm a bit rusty when it comes to the general consensus about what to do with our emergency fund. It's about enough to keep us comfortably for two years and, at the moment, is sat in a near-zero interest bank account. Back when I was last up to date with recommendations we were compelled to put it in a bank account so that it was instantly accessible if said emergency ever transpired, but that was back when bank accounts paid a bit of interest.

We had wondered (Pre C-19) about putting the money into a peer-to-peer lending situation, but since the pandemic, it seems that many are cutting rates as borrowers are defaulting on their payments.

What, then, should we do with our emergency fund?
It needs to be easily accessible (within a day or so), and ideally not shrivelling up under inflation in a zero-interest account.

Any ideas? Where's your nest egg?

Many TIA.

TR

You probably won't like this answer TR, but I think now is not the time to deposit your cash with the bank but rather to buy the bank's shares.

Why?

Last year Lloyds Banking Group returned almost £4bn to its shareholders. Today, you can receive LBG's shareholder distributions by buying the shares for just £22bn (the bank's market cap). Well not all of them but as many shares as you want. Do the maths. (Annual income rate = 4bn/22bn x 100%).

2007-8 was a good time to keep cash in the bank. You could get a 3 to 5 year account paying 6%pa or more in a government-owned bank. Now, you get practically nothing.


Now I know this is heresy because Cash is Safe and all, but you could do this: put 50% of your cash in a bank, any bank, it really doesn't matter. Then use the other 50% to buy shares in that bank. If I am proved utterly wrong and the shares get completely wiped out you still have half your cash. If I'm right, I bet you get a better return than having 100% of your cash in a 0.5% account.

Good luck whatever you do.

GS

That's a very interesting point and one I've considered - and still do.

We're rather risk adverse and recognise the fact that we are unlikely to be able to time the market or do well as stock pickers. Neither can we afford to lose 50% of our savings, or at least, the prospect of doing so fills us with dread. Our business is doing alright at the moment, but who knows what will happen next, especially under the circumstances. We'd rather have a fat lump of emergency funds sat there safely waiting for us.

That said, all being well, it is very likely that we'll continue to accrue savings, and I can't justify putting 4/5/6 years of expenses into Premium Bonds when there's the opportunity to see what happens in the markets following the recent nosedive. We're almost certainly going to be in a position to start investing in some fashion, but that's another thread for another day.

WRT the regular saver/notice accounts. The most attractive one I can find after a quick Google is returning £2.75% on a maximum of £300 deposited per month, delivering <£100 interest over the year. For the administrative burden involved, I'd probably rather take a punt on premium bonds and see how the die fall.

I certainly see the value of using a credit card for immediate emergency funds, thereby alleviating the need for instant access to any emergency savings. That makes all the sense in the world and I hadn't considered the option.

Thanks to you all for your counsel. It's been invaluable.
I'll be back to discuss investments sometime very soon.

TR

(PS - apologies for the late response. We've just finished our monthly magazine deadline and just come up for air after putting the mag to bed.)

[Alaric]

I certainly see the value of using a credit card for immediate emergency funds, thereby alleviating the need for instant access to any emergency savings. That makes all the sense in the world and I hadn't considered the option.

With online Brokers, you can sell and get the proceeds to your bank account within a week and thus in time to pay off a credit card balance, That gives near instant access. What it doesn't do is guarantee that the amount you get back is as least as much as was put in. It is however possible to buy assets, short bond or Gilt ETFs being examples, which have near cash characteristics. Returns are unexciting.