Sunday, October 30, 2005

Emergency Fund vs. Freedom Account: Where's Your Stash?

A post over at Caitlin's blog, Clutter2Cash, made me ask myself a question:

Is it time to keep my Freedom Account and Emergency Funds separate?

Something has changed in my head lately, I think, because previous to now, the idea didn't intrigue me that much. I was keeping it simple, just pouring everything into ING Direct and tracking the money "separately" in an Excel spreadsheet.

Now, the more I consider it, the more I want to keep the funds at separate banks. I suppose I'm just tired of wondering EXACTLY how much is in my e-fund, and having to pull up one of my many spreadsheets to figure it out. I'd be much more content if I could tell it from a glance at my account list in Quicken.

What I plan to do is this: I'll keep my Freedom Account money at ING Direct(3.4%), and move my Emergency Fund to Emigrant Direct (4.0%).

Freedom Account savings are much more short-term in nature — savings are stored for periods of 90 to 360 days — and I know what I'm getting with ING. Electronic deposits and withdrawals are quick, smooth, and painless.

Emigrant Direct, on the other hand, is still pretty much an unproven entity with me. All I can say about them is that I've heard things. I have zero personal experience with them yet, aside from their account-opening process. Sadly, I can't give them glowing reviews on that.

Anyhow, if I really stretch, I can come up with a few good reasons for physically separating your Freedom and Emergency Fund accounts:

(1) If something happens at one of the banks — a systems snafu or whatever — you'll still have in-a-pinch access to the money at the other account. How likely is this? Probably not very. But I guess it merits consideration.

(2) No need for a spreadsheet to help keep your account balances separate. You'll know the balances at a glance just by checking them online (or thru Quicken or MS Money, if you're being a good little boy or girl and entering transactions promptly).

(3) If you're one of those luminaries who carries The Big Stick and likes to keep $100,000 cash at the ready, well, you'll want to split it up between several financial institutions. There's that FDIC-insurance thing to consider, you know. Why someone would want to keep a hundred grand in a simple savings account is beyond me, but I know there are people out there who do this. (How do I know? Because I've personally seen blue-haired Cadillac drivers with checking-account registers that show balances of $50k to $70k. I am not kidding.)

(4) If the account list at the left side of your Quicken 2005 Deluxe screen still has some white space at the bottom, or if you don't yet have to scroll down in order to view all your accounts, then you're in serious danger of not having enough accounts. So, by extension, what you need are more accounts. I'm pretty sure Quicken says this in their online FAQs. Look for it if you want.

Then get back to Caitlin. It was her idea. :)

— Posted by Michael @ 8:06 PM


Not enough accounts? I wish you'd explain to my wife why I need more accounts, because my answers mostly amount to, "Well, we'll get a bonus for opening another. Isn't that great?"


I keep my efund in ING, along with our house downpayment fund. You could separate your accounts in ING "physically" so you could track the balances. Isn't that what you do w/ your freedom accounts? Or is your spreadsheet the only thing showing the separation? Just curious.


How many people are there to think of parking their money in different account.It can be well traced and there will be everyday emergency in the real sense.



The only thing that shows my inter-account separations is an Excel spreadsheet. Kind of a pain. I'd separate the account balances inside ING, but I don't want to have to log on to see that stuff.


Thanks for the link Michael :) I have yet to actually do the real work behind setting up a freedom account, but with these two spendy months coming up I wanted to be somewhat prepared.

So sending my emergency-fund-in-training to Emigrant helps me psychologically too (a big "break glass only in case of emergency" sign basically)

But I'm finally at a point where I have enough to separate out. It felt too puny to do until now. I liked seeing the save-o-meter grow and loathed the idea of needing to take money out for a "freedom" purchase.


Isn't it funny how once you have your efund in place, you are loathe to take it out - even for emergencies? My wife and I have had our efund in place for years and are yet to touch it.

Are we lucky? Or wierd? Probably a bit of both.

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Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

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