Keep emergency fund separate?

Humdinger1

Hello

I've gone from being habitually in debt to being a saver, in no small part thanks to this forum.

I have a basic emergency fund of 1k saved up. I'll be adding to it yearly via a monthly saver with Santander which pays 2.5% from next year. The thing is, you can only pay into it for a year, then it matures and you have to do something else with it.

I have a current account with Santander paying 1.5% interest per year up to 20k, which I keep in there as a basic balance with money for direct debits, everyday spending etc on top. I'm getting 25 per month in interest . I've opened a Santander esaver with an APR of 0.45% because it feels sensible to keep an emergency fund separate; it is for emergencies, right?!

As director of a micro ltd co, it can be hard to predict exactly how much money I'll make each year, so am reluctant to set up another current account. I think Santander has one of the best interest rates anyway.

Does anyone keep their emergency fund in their current account; if so, how do you mentally separate it from daily funds? Excel spreadsheet; YNAB? I'm thinking about trying the latter.

Thanks for any comments; this is fairly new territory and I could do with a jungle guide.

Humdinger

Apodemus

I keep my emergency fund in Premium Bonds rather than in my current accounts to keep it separate.

Although I am a spreadsheet geek for many things, I keep an old fashioned book as a record of all my financial transactions and balances, along with notes etc. I find a paper record much easier to scroll back through and find things at a glance than an electronic version.

Humdinger1

Thanks Apodemus; that's one thing I'll look into. Hadn't thought of that. Do you get regular wins? Humdinger

george4064

Have you considered any of the top paying instant access accounts?

Marcus account is the first one that springs to mind, but plenty of other options.

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess

Humdinger1

George

Thanks, Santander is one of them and I do bank with them. Will see if I can add Marcus, but predicting earnings can be difficult. Appreciate your ideas.

Apodemus

Humdinger1 wrote: »

Thanks Apodemus; that's one thing I'll look into. Hadn't thought of that. Do you get regular wins? Humdinger

I’ve always found that I get pretty close to the expected return of 1.25-1.5% each year. Never had a big win, though! The money is easy enough to access if you need it, but just difficult enough to not access on a whim.

Goudy

I have a separate emergency fund of around 5 months income in case things go proper t*ts up work wise but I also have a current account "buffer" of around 1 months income in my main current account that pays interest as a mini emergency fund in case I have a heavy month or two with unexpected bills or costs.

I don't consciously think about it until the day before payday.
If there's anything above I cream it off into a saving account.

If I've gone over I don't worry, it's what it's there for and I know it'll more than likely even out in the coming months when expenditure might not be as high.

I find this minimum target limits my spending a bit so I can cream off a bit more than my normal planned savings, though if I don't I'm not going to get hammered on an overdraft just because something unexpected came up. I find there's nothing as demoralising as having to rifle my savings to pay for something unexpected.

I found it easy to build this buffer, just start small and increase it each month until you're where you want it to be.

bowlhead99

Humdinger1 wrote: »

Thanks Apodemus; that's one thing I'll look into. Hadn't thought of that. Do you get regular wins? Humdinger

Premium bonds are useful particularly if you're a higher rate taxpayer with enough interest income to use up your annual allowances - being tax free means it can be a nice effective rate. If not, you would get a better rate of interest somewhere like Marcus etc, but they aren't a terrible product if you just want somewhere to make sure you don't accidentally spend the money while keeping it for emergencies or year end tax bill etc.

However, the 'not a terrible product' is only really true for larger amounts.

If you have £25k or £50k in there and have average luck, with odds of 24,500 to one on every pound in the account each month, you would expect to win one or two prizes a month (sometimes more sometimes less). The prizes would nearly always be £25 denominations and so would average out at about 1.2% for the year (£600 a year on £50k is 1.2%)

But if you only have £1000 in there you would only win once every 24.5 months - and while you might of course win more often, you might win less often; waiting two to three years of getting literally nothing to hopefully get that £25 prize, will probably make you think it's a useless product. Over that timescale you could just put the money in Marcus and use a couple of pounds of the regular interest income to buy a lotto ticket, if you fancy an incredibly small chance to win a lifechanging amount of money.

juststuff123

Hi Humdinger

you may find the best solution for you comes quite organically, as you try different thing and see what works best for you. I used to have various little savings pots in different accounts, emergency fund, annual out going account (car insurance, birthdays, xmas etc) As I developed a budgeting spreadsheet I found the different savings accounts were unnecessary and actually a bit of a faff, I knew what I had and what I could spend and that I'd saved appropriately.

Good luck

cfw1994

I'd agree that premium bonds can work well for this. Invest it, ask winnings to go back in, and then ignore it.

YES, you may not win a penny (thus losing out to inflation), but as you build it up, the chances increase....I have done about average, just over the 1.2%, BUT the money is easy to access, and there is always a (very slim!!) chance of a win.

DD has had about 1k's worth for less than a year....and had a £25 win last month. I told her she may never get such a good return again:rotfl:

If you want to chase a better rate, Marcus perhaps wins out.

talexuser

I don't agree with the esaver at 0.45% because you are losing money. Put the extra into Marcus or similar at todays 1.45%.