Friday, April 17, 2009

The new set it and forget it emergency fund.

I've found myself awash in liquidity these past couple of months after a c.d. matured and the series I Bonds I bought last April reached the one year mark and are now available for emergencies. After careful consideration, I decided to buy more bonds, putting $2,000 in last month and another $3,000 in last week, giving me a grand total of $8,050 in I bonds, plus accrued interest. A year from now when I'll be able to redeem bonds as necessary, that'll be a perfectly acceptable emergency fund.

I know rates are going to be lousy for a while, but I think I can live with 0% interest in the wake of serious deflation. Even though I got pretty spoiled by HSBC back before the economy tanked, I know that the point of an emergency fund is to keep reserves on hand, not to generate more income. I'm more concerned about inflation eating away my savings when we finally get out of the recession but interest rates don't catch up right away. I Bonds should combat that pretty effectively.

Somehow, there's a much bigger psychological barrier to going to a bank and physically signing over the piece of paper than to electronically transferring invisible money from savings to checking so I don't think I'll be tempted to cash in the bonds for non-emergencies. However, if I ever do need money in a pinch, I can redeem up to $1,000 worth of bonds at a time at a bank anywhere in the country and walk out with the cash, which is a darn sight quicker than waiting for money to move from one account to another by way of ACH transfer. It's also pretty nice to be able to make a decision once and forget about it for the next couple of decades instead of fretting over chasing rates.

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