MMA vs CD's for Emergency Fund?

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TysonCook

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Hello,
I was looking into funding a "emergency fund" for ~3mo-4mo. My mortgage and all bills etc = around $1100/mo. So my wife and I figure that $5,000 would be a good starting figure.

We have almost all $5k to put away w/in the next 2mo, but I'm curious as to put it into a MMA vs revolving CD's for return etc.

Does anyone have any suggestions for where to place the $?

I have fidelity for my retirement, and we both have BOA for our regular bank.

Thanks in advance!

....and in case it matters, we both have 401k's that are above the matches, and I have a roth funded to the max as well for last/this/next year. I DO have student loans ($180k), and car loan $14k at 4.5%.

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With interest rates in the gutter, I really doubt there's much difference between em. The MMA would probably be better as its a bit more liquid for emergency purposes.
 
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Personally I would stick with a good online savings bank (HSBC, ING Director, and/or EmigrantDirect). I actually have accounts through all 3. Interest rates are currently about 3% with HSBC, and 2.5% with ING I think (it's been a while since I looked).

If you need access to the cash (e.g., it's your emergency reserve fund), then this is the ideal way to keep it in an interest bearing account.

I would avoid putting any emergency money into CD's. If you need to cash them early, you may find yourself paying a hefty penalty.
 
I forgot to mention that HSBC gives you an ATM card if you need access to cash. This is particularly useful if traveling overseas where you need to withdraw more than your traditional ATM limits (I think most banks limit ATM transactions to $300/day).
 
money market and CDs are both safe options - the ONLY real difference with CDs is that if you do an early withdrawal you lose your accumulated interest...

money market accounts tend to be far more flexible...

what may be a better idea (depending on your tax bracket) is to use Fidelity's cash management in their brokerage and just select a tax-efficient (meaning no federal tax) muni bond money market fund - and leave the money in the core account....

i can't believe that your mortgage and bills are <$1,100... unbelievable... your emergency fund won't even cover a week or two for me :)

i would argue that you should have 6 months of expenses saved until you have other liquid money devices...
 
Vanguard Prime MMF is a great option most of the time. Currently, due to the weirdness in the credit markets, the tax-exempt fund actually has a better yield, even without adjusting for your tax-bracket. Who knows how long that will last. VG Prime was the number one returning MMF over the last 25 years. That a solid enough record for you? I find it is rarely the top one in the country, but almost always in the top 2 or 3 while the other ones bounce all over the place. It is generally competitive with the high-interest savings accounts around such as ING and provides free checking for amounts over $250.
 
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