Keep emergency fund separate?

Eco_Miser

Humdinger1 wrote: »

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.

Like recycle it into another monthly saver with a different bank.

Humdinger1 wrote: »

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?!

Right, but why in an account paying .45% when another bank (Marcus) is paying 1.45%, and doesn't require you to have a current account with them.

Humdinger1 wrote: »

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.

That's a non sequitur. Current accounts (even those that require a minimum pay-in to qualify for interest or waived fees) don't require regular incomes. Just bounce money around from one to another as needed.
Having two current accounts is also useful for those occasions when the gremlins hit your main account.

Humdinger1 wrote: »

I think Santander has one of the best interest rates anyway.

There's still TSB @ 3%, and Nationwide @5% for a year. My other accounts are down to 1.5% now.

Humdinger1 wrote: »

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.

Yes. The account is only for my emergency fund/cash buffer in case my investment dividends dry up (a different kind of emergency). Until recently it was earning 5% AER.

I also keep everything on a spreadsheet (Open Office, not Excel - why pay?)

Humdinger1

Thanks everyone for all your comments. Re the apparent non sequitur, I've found previously that banks want you to state annual income when opening current accounts. The last time I did that however was back when dinosaurs roamed the earth and maybe things have moved on? I don't want a refused current account on my credit file.

Will do the trial and error initially and see what works.

Appreciate your feedback
Humdinger

PRAISETHESUN

Accounting for the monthly fee, the Santander 123 actually only ends up paying out ~1.2% on £20k, or less if you keep less than the full amount saved. Personally I'd recommend downgrading to a 123 Lite and throwing the excess savings into Marcus or the next best easy access account. No need to segregate the funds into a third account, especially one that pays less interest. You just need to mentally note that the "savings" account needs to be kept at a minimum balance in order to secure your emergency fund.

As for the income question - in practise they ask but it only really effects if they offer you an overdraft or not. You can ping money between two different current accounts by standing order in order to meet pretty much every bank's minimum pay in requirement. I also wouldn't worry too much about a single hard search if you get declined. A search here and there will not impact things for very long, it's only when you make multiple searches in rapid succession do you get problems.

colsten

Humdinger1 wrote: »

Thanks everyone for all your comments. Re the apparent non sequitur, I've found previously that banks want you to state annual income when opening current accounts. The last time I did that however was back when dinosaurs roamed the earth and maybe things have moved on? I don't want a refused current account on my credit file.

You just give an approx number of your income. It doesn't really affect whether you can get a current account, unless, perhaps if you say it's zero.

Declined applications do not appear on your credit file.

Keeping all your funds with a single bank is a very high risk strategy. What if your emergency occurs with Santander, e.g. if they lock access to your accounts, or have IT problems? Both issues are not unheard of.

Besides, 0.45% is a derisory rate. I am not Santander bashing as I hold accounts with them myself - just not their abysmal instant access savings one.

Zero_Sum

Humdinger1 wrote: »

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

Seriously down grade your 123 account to the lite version as you're chucking away nearly £50 a year. The 1.5% claim is a complete con once you add in the fees.

HCIMbtw

Apodemus wrote: »

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.

I quite like this idea.. I essentially had my emergency fund sat in my current account - around £7.2k of my balance would be what i'd need for 6 months I think.!

The guaranteed interest of savings account is so poor I could never be bothered switching it into a saving account.. and I couldn't put it in fix because I could potentially need it fairly quickly as cash in a worst!case scenario. Also my ISA allowance is used for S&S, and I don't want to mix cash reserve in with this.!

That said I wanted to move the money out of my current account quite like how simple premium bonds are to buy. If I make nothing no bother, but it seems like a bit of fun and a simple way to differentiate!my pots, bought a load last night (quite scary making a transaction for that sum online!)

Humdinger1

Thanks again everyone; food for thought! Drip-feeding info is often sternly criticised, but I realise that I should have said that the 5 monthly fee is more than covered by the interest I receive on dds and retail offers (and yes, I only use them for stuff I'm buying anyway). Very fair point re not having all money in one bank. I do keep a float in my business acct. Really appreciate all the expertise on here. Humdinger

steviecoyle

I keep my emergency fund in its own account. I would never mix it in with something else. For me it just helps to keep them seperate.

Eco_Miser

Humdinger1 wrote: »

Re the apparent non sequitur, I've found previously that banks want you to state annual income when opening current accounts.

colsten wrote: »

You just give an approx number of your income. It doesn't really affect whether you can get a current account, unless, perhaps if you say it's zero.

I'm pretty certain I opened an interest paying current account with a declared income of zero, certainly a low amount. It was between finishing work and drawing any pensions.

Zero_Sum

:eek:

Humdinger1 wrote: »

Thanks again everyone; food for thought! Drip-feeding info is often sternly criticised, but I realise that I should have said that the 5 monthly fee is more than covered by the interest I receive on dds and retail offers (and yes, I only use them for stuff I'm buying anyway). Very fair point re not having all money in one bank. I do keep a float in my business acct. Really appreciate all the expertise on here. Humdinger

I take it you mean the cashback & not interest. You get EXACTLY the same cashback on the lite version & it only costs £1. You are chucking away £4 pcm for nothing. Even if you have the full £20k in, the interest still isnt the best as you're in effect getting a 1.2% return after the fee is taken off the interest