Emergency cash fund musings

enthusiasticsaver

GazzaBloom said:

I have held a cash emergency fund for some time, having been a follower of Dave Ramsey's baby steps as I got out of debt and cleared the mortgage but have been musing lately on an alternative strategy to cover emergencies.

I hold £10K cash in an instant access Cash ISA and we have dipped into it for emergencies over the last 2 years for car issues and vets bills but always topped it back up afterwards.

I have just run the calcs on what £10K could possibly accumulate to over 20 years if put in a stocks and shares ISA and invested in a low cost index fund vs the low interest gains held in a cash ISA, I haven't really considered how bad the cash drag was before.

I am musing on taking out a credit card (I have none at present) and running some regular spend through it such as the weekly shopping and diligently paying it off every month so a £10K credit limit could hopefully be granted in time and then using the credit card credit limit as the emergency fund

This would appear be financially advantageous assuming discipline is maintained and that any use of it to cover an emergency is paid down as soon as possible, just as you would top back up the cash emergency fund.

Anyone using this alternative emergency fund strategy?

No we don't use that strategy.  We save in pots for things like cars and house repair costs and we have a similar cash emergency fund to you but we are retired so not necessarily there for emergencies but accessible cash to avoid drawing on stocks and shares in a downturn. It depends on your financial situation as to whether it is a good idea or not.  If you have a partner and a high income I daresay a credit card could be a temporary buffer for emergencies but personally I would feel uncomfortable having zero savings. 

GazzaBloom

Qyburn said:

Prism said:

It all depends on the company of course but in the worse case scenario, such as the company goes bust, there is no redundancy package. 

If the company goes bust then he'll get Statutory Redundancy, which looks like it's a bit more generous now than when I was in receipt in 2011.

My company pays significantly more redundancy than the statutory amount, in the fact that it's not capped, so 1 weeks pay for every year worked up to age 41 and 1.5 weeks pay for every year worked after age 41. I have 20 years service and have a calculator that updates the amount I would get including 12 weeks lieu of notice, after deductions, it's a tidy sum.

But there is little chance of the company going bust in the foreseeable future, we make electricity.

Sea_Shell

We have about 5.5% of our total overall portfolio in cash, of which 1.5% of that is available as instant access.

Plus about 2% in P2P, which although cash on 60 day notice, isn't guaranteed to be available when you need it, so it's sort of so-so cash.

Plus another 3% available on CC balances.

This is on top of DHs drawdown, which covers are usual monthly spends, so it would only be needed in unforeseen circumstances.

MovingForwards

Like others I also have pots.

Everything for my car and home insurance. A pot where I'm saving up 6 months mortgage payments. A pot with 6 months of bills and food. A home repairs and upgrade pot. A £1k emergency fund. A few pots with general savings. 
- I'm slowly working towards being mortgage free and when savings / outstanding mortgage match I'll clear it; I overpay it each month too.

On top of that I have money for when I'm older / retired eg S&S ISA, SIPP and PBs. 

Plus my former / current pensions.

You just need to find what works for you.

Albermarle

Plus about 2% in P2P, which although cash on 60 day notice, isn't guaranteed to be available when you need it, so it's sort of so-so cash

Unless the 60 day account is gated, like what has just happened with one of the bigger P2P lenders- Assetz Capital.

Gated means no withdrawals until they allow it/enough loans have redeemed and then the cash will be available drip drip only.

Sea_Shell

Albermarle said:

Plus about 2% in P2P, which although cash on 60 day notice, isn't guaranteed to be available when you need it, so it's sort of so-so cash

Unless the 60 day account is gated, like what has just happened with one of the bigger P2P lenders- Assetz Capital.

Gated means no withdrawals until they allow it/enough loans have redeemed and then the cash will be available drip drip only.

That's why I said "so/so cash".

We're not relying on being able to get it when we need it....or at all!! 😉   

I have weekly £1000 withdrawals set up which I cancel and re-request, if not required.   

(Loanpad)

Bridlington1

I would strongly advise against investing an emergency fund. I think the best thing to do would be to ensure your emergency fund is in the highest paying easy access account(s) you can get your hands on.

If you need an ISA your best bet will be the Virgin Money Easy Access Cash ISA Exclusive, now at 3%. It's a flexible ISA so if you need to dip into your savings, you can top them up again without losing the tax free allowance, though you do need a Virgin Money current account with them though.

Failing that there's the Barclays rainy day saver, paying 5% on up to £5k, though you need to have Barclays blue rewards to get this one.

There's also the option of spreading your emergency fund around several easy access regular savers, including but not limited to:

• Club Lloyds Monthly Saver, paying 5.25% on £400/mth, Club Lloyds current account required to open this one though.
• Coventry First Home Saver, a regular saver which will pay 5% from 6/1/23. Max monthly deposit is £1k.
• Natwest/RBS digital regular savers, paying 5% on up to £5k each but max monthly deposit is £150 plus money saved through round ups. Current account required to open these.

For a full list of the top regular savers see:
https://forums.moneysavingexpert.com/discussion/6106986/regular-savings-accounts-the-best-currently-available-list/p1

The regular saver strategy would probably be best if you are wanting a high interest version of the savings pots strategy. I personally quite like this method as it ensures that if one of the banks has a technical meltdown, freezes your account etc you still have access to the bulk of my savings if needed.

GazzaBloom

Bridlington1 said:

I would strongly advise against investing an emergency fund. I think the best thing to do would be to ensure your emergency fund is in the highest paying easy access account(s) you can get your hands on.

If you need an ISA your best bet will be the Virgin Money Easy Access Cash ISA Exclusive, now at 3%. It's a flexible ISA so if you need to dip into your savings, you can top them up again without losing the tax free allowance, though you do need a Virgin Money current account with them though.

Failing that there's the Barclays rainy day saver, paying 5% on up to £5k, though you need to have Barclays blue rewards to get this one.

There's also the option of spreading your emergency fund around several easy access regular savers, including but not limited to:

• Club Lloyds Monthly Saver, paying 5.25% on £400/mth, Club Lloyds current account required to open this one though.
• Coventry First Home Saver, a regular saver which will pay 5% from 6/1/23. Max monthly deposit is £1k.
• Natwest/RBS digital regular savers, paying 5% on up to £5k each but max monthly deposit is £150 plus money saved through round ups. Current account required to open these.

For a full list of the top regular savers see:
https://forums.moneysavingexpert.com/discussion/6106986/regular-savings-accounts-the-best-currently-available-list/p1

The regular saver strategy would probably be best if you are wanting a high interest version of the savings pots strategy. I personally quite like this method as it ensures that if one of the banks has a technical meltdown, freezes your account etc you still have access to the bulk of my savings if needed.

You are missing the point of my hypothetical debate. I am speculating on an alternative strategy to holding cash as as an emergency fund. If it was decided to use an alternative source of funding for emergencies then the cash is no longer acting as an “emergency fund” and could used for any purpose.

I hold cash to cover emergencies at present and it sits in a Cash ISA where my day to day bank account is held with the Co-operative Bank for maximum convenience and ease of transfer between accounts should it be needed in a hurry. As I've decided it's role is to cover emergencies I have no care to be fannying around chasing the highest interest rates as seems to be such a popular theme among users on this forum. If I want capital growth from my money I invest it, not move it from one “below inflation” fixed cash rules based interest rate to another.

YBR

I don't, and would not do this.
3-6 months in instant access, another 3-6 months in delayed access
Only after these are on target do I put amounts into fixed term bonds and investments.

I use Credit Cards for protection - particularly online shopping, not for borrowing or emergencies, or if I have to spend for work and claim back (I refused the Employer's Amex because they couldn't send me the T&Cs prior to signing that I'd read and agreed them).

Bridlington1

GazzaBloom said:

Bridlington1 said:

I would strongly advise against investing an emergency fund. I think the best thing to do would be to ensure your emergency fund is in the highest paying easy access account(s) you can get your hands on.

If you need an ISA your best bet will be the Virgin Money Easy Access Cash ISA Exclusive, now at 3%. It's a flexible ISA so if you need to dip into your savings, you can top them up again without losing the tax free allowance, though you do need a Virgin Money current account with them though.

Failing that there's the Barclays rainy day saver, paying 5% on up to £5k, though you need to have Barclays blue rewards to get this one.

There's also the option of spreading your emergency fund around several easy access regular savers, including but not limited to:

• Club Lloyds Monthly Saver, paying 5.25% on £400/mth, Club Lloyds current account required to open this one though.
• Coventry First Home Saver, a regular saver which will pay 5% from 6/1/23. Max monthly deposit is £1k.
• Natwest/RBS digital regular savers, paying 5% on up to £5k each but max monthly deposit is £150 plus money saved through round ups. Current account required to open these.

For a full list of the top regular savers see:
https://forums.moneysavingexpert.com/discussion/6106986/regular-savings-accounts-the-best-currently-available-list/p1

The regular saver strategy would probably be best if you are wanting a high interest version of the savings pots strategy. I personally quite like this method as it ensures that if one of the banks has a technical meltdown, freezes your account etc you still have access to the bulk of my savings if needed.

You are missing the point of my hypothetical debate. I am speculating on an alternative strategy to holding cash as as an emergency fund. If it was decided to use an alternative source of funding for emergencies then the cash is no longer acting as an “emergency fund” and could used for any purpose.

I hold cash to cover emergencies at present and it sits in a Cash ISA where my day to day bank account is held with the Co-operative Bank for maximum convenience and ease of transfer between accounts should it be needed in a hurry. As I've decided it's role is to cover emergencies I have no care to be fannying around chasing the highest interest rates as seems to be such a popular theme among users on this forum. If I want capital growth from my money I invest it, not move it from one “below inflation” fixed cash rules based interest rate to another.

You can transfer money directly from the Virgin cash ISA and a current account held elsewhere in a matter of seconds so I don't see how keeping the money in Co-op is much more convenient than keeping the money in Virgin.

Personally I don't see what you've got against chasing the highest interest rates. The highest paying easy access cash ISA I can find with Co-op is the online cash ISA at 1.53%. If you've got £10k sat in it for a year you are losing out on £147 of extra interest compared to moving it to Virgin at 3%. £147 is not to be sneezed at IMHO. You don't have to be constantly moving your money about every few days, but surely checking if there are any higher paying accounts once every now and again and moving your money to them won't do you any harm.

The reason that chasing the best interest rates is a common theme on this forum is because it's an easy way of earning a bit of extra money for doing very little. Why leave money sat in an easy access savings account at 1.5% when it can be sat in a different easy access account at 3%?