04-19-2022, 10:36 AM
Why I bonds could be bad for an emergency fund
<!-- SC_OFF --><div class="md"><p>I've been considering migrating my emergency fund into I bonds by purchasing the 10k every year, and after each year has cleared, withdrawing 10k from my current emergency fund (high yield savings). Here are my thoughts:</p> <p>First some math on the difference - for each 10k in I bonds instead of a high yield savings account (assume 0.6%), you will gain...</p> <ul> <li>this year: 8.37% - 0.6% = 7.77% = $777</li> <li>at target inflation: 2% - 0.6% = 1.4% = $140</li> </ul> <p>For years like 2022, which are not the norm, it's clearly a nice bonus. The amount becomes much less impactful when we're at or close to target inflation. Long term, I would characterize the additional earnings as nice to have, but nothing that will meaningfully impact your overall financial state.</p> <p>However, during however many years it takes to build an appropriate emergency fund in I bonds, you must also keep the remainder plus the currently seasoning 10k in an alternate source. This is 10k that could otherwise be invested.</p> <p>Still, once your emergency fund is fully transferred over you're in good shape, right? Well yes, unless you have to actually use it. First, it's a little harder to access. I couldn't find much on this, but it seems like best case you could access your money in 2-3 days. Not terrible, but not truly liquid. It's likely a good idea to keep some amount of your emergency fund in something immediately available like a high yield savings account anyways. Second, if you need to drain your emergency fund, which is what it's there for, you are now back to square one and need to spend however many years building it back up again. The extra 10k you need to hold will likely be even more of an inconvenience right after a large unexpected expenditure.</p> <p>While I was originally keen to jump in on I bonds for my e-fund purposes, I'm now seriously questioning if it's actually worth it.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/financewings"> /u/financewings </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/u6su48/why_i_bonds_could_be_bad_for_an_emergency_fund/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/u6su48/why_i_bonds_could_be_bad_for_an_emergency_fund/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>I've been considering migrating my emergency fund into I bonds by purchasing the 10k every year, and after each year has cleared, withdrawing 10k from my current emergency fund (high yield savings). Here are my thoughts:</p> <p>First some math on the difference - for each 10k in I bonds instead of a high yield savings account (assume 0.6%), you will gain...</p> <ul> <li>this year: 8.37% - 0.6% = 7.77% = $777</li> <li>at target inflation: 2% - 0.6% = 1.4% = $140</li> </ul> <p>For years like 2022, which are not the norm, it's clearly a nice bonus. The amount becomes much less impactful when we're at or close to target inflation. Long term, I would characterize the additional earnings as nice to have, but nothing that will meaningfully impact your overall financial state.</p> <p>However, during however many years it takes to build an appropriate emergency fund in I bonds, you must also keep the remainder plus the currently seasoning 10k in an alternate source. This is 10k that could otherwise be invested.</p> <p>Still, once your emergency fund is fully transferred over you're in good shape, right? Well yes, unless you have to actually use it. First, it's a little harder to access. I couldn't find much on this, but it seems like best case you could access your money in 2-3 days. Not terrible, but not truly liquid. It's likely a good idea to keep some amount of your emergency fund in something immediately available like a high yield savings account anyways. Second, if you need to drain your emergency fund, which is what it's there for, you are now back to square one and need to spend however many years building it back up again. The extra 10k you need to hold will likely be even more of an inconvenience right after a large unexpected expenditure.</p> <p>While I was originally keen to jump in on I bonds for my e-fund purposes, I'm now seriously questioning if it's actually worth it.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/financewings"> /u/financewings </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/u6su48/why_i_bonds_could_be_bad_for_an_emergency_fund/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/u6su48/why_i_bonds_could_be_bad_for_an_emergency_fund/">[comments]</a></span>Kind Regards R