Emergency Fund: Muni bonds or CDs

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Emergency Fund: Muni bonds or CDs blue7echo 11-10-2006  Re: Emergency Fund: Muni bonds or CDs zxcvbob 11-10-2006  Re: Emergency Fund: Muni bonds or CDs Shhhh 11-10-2006  Re: Emergency Fund: Muni bonds or CDs zxcvbob 11-10-2006  Re: Emergency Fund: Muni bonds or CDs Paul Michael Br... 11-18-2006  Re: Emergency Fund: Muni bonds or CDs Mark Freeland 11-19-2006  Re: Emergency Fund: Muni bonds or CDs blue7echo 11-10-2006  Re: Emergency Fund: Muni bonds or CDs joetaxpayer 11-10-2006  Re: Emergency Fund: Muni bonds or CDs My interest 11-22-2006
Posted by blue7echo on November 10, 2006, 2:03 pm I have an emergency fund and I am presently reconsidering how to store it effectively. It is presently stored in a high yield savings account (Interest Rate 4.93%, Annual Percent Yield: 5.05%). I need to have the money available to me if I need it, but I want to earn as much as possible while sitting around. I am considering whether it is preferable for me to put the money in a single state municipal bond fund for my state or to put it in a CD ladder. I am considering the Fidelity Connecticut Municipal Income (FICNX) fund. The average annual total returns quoted are: 1 Year 4.95 3 Year 3.80 5 Year 4.41 10 Year 5.38 The CD yields I am looking at are between 5% and 5.50% depending on length. The munis have historically produced tax free yields very close to the taxable rates for the CDs. But I am concerned about the stability and availability of the funds if I choose the munis. My tax rate is 28% federal and 5% state. I am also considering a half and half solution. I am interested in comments and suggestions concerning this matter. Posted by zxcvbob on November 10, 2006, 2:41 pm blue7echo wrote: > I have an emergency fund and I am presently reconsidering how to store > it effectively. It is presently stored in a high yield savings account > (Interest Rate 4.93%, Annual Percent Yield: 5.05%). I need to have the > money available to me if I need it, but I want to earn as much as > possible while sitting around. > > I am considering whether it is preferable for me to put the money in a > single state municipal bond fund for my state or to put it in a CD > ladder. > > I am considering the Fidelity Connecticut Municipal Income (FICNX) > fund. > The average annual total returns quoted are: > 1 Year 4.95 3 Year 3.80 5 Year 4.41 10 Year 5.38 > [snip] > I am interested in comments and suggestions concerning this matter. > I have mine in a 3-bond ladder of 90 day T-Bills, plus I buy a $1000 six-month T-Bill every month that I have money left over (that didn't happen this month because an emergency wiped out my checking account reserves, but I didn't have to touch the ladder.) The 3-month T-Bills are earning about 5%, exempt from state taxes. Every month, one of them matures and I can take money out instead of rolling it over if I have to pay for an emergency. (the emergency can go on a credit card for a month while I wait for a bond to come around) It works great for me; YMMV. ;-) Bob Posted by Shhhh on November 10, 2006, 5:13 pm > I have mine in a 3-bond ladder of 90 day T-Bills, plus I buy a $1000 > six-month T-Bill every month that I have money left over > The 3-month T-Bills are earning about 5%, exempt from state taxes. >> Bob > Just out of curiosity where do you buy your T-bills from? treasurydirect.com? or do you participate in the auctions through a broker? Posted by zxcvbob on November 10, 2006, 7:17 pm Shhhh wrote: > Just out of curiosity where do you buy your T-bills from? > treasurydirect.com? or do you participate in the auctions through a broker? > treasurydirect.com. When rates were rising, I just bought 4-week T-bills. When rates stabilized, I split it into 13-weekers and started buying 26's on the side whenever I have an extra $1000 in the checking account. Best regards, Bob Posted by Paul Michael Brown on November 18, 2006, 6:56 pm There are money market funds that invest solely in municipal bonds. They maintain a $1.00 net asset value, although that's not guaranteed or insured. All the big fund house (Vanguard, Fidelity, etc.) offer munibond money market funds. Problem is, he's not going to find one that's state specific to Conn. So he'll still pay the state tax. Moreover, the original poster's federal marginal rate is 28 percent. This is fairly low compared to most people who invest in munibonds. If he parked his emergency fund in a national munibond money market fund yielding 3.4 percent, his taxable equivalent yield would be 4.72 percent. That's less than he's getting now. Similar Threads Posted Laddering Muni Bonds vs Muni Bond Fund October 8, 2006, 10:43 am Re: Warning about HELOC as Emergency Fund February 11, 2008, 2:47 pm Re: Warning about HELOC as Emergency Fund February 12, 2008, 9:19 am Re: Warning about HELOC as Emergency Fund February 12, 2008, 4:21 pm Emergency fund questions from brand new investor... December 8, 2006, 5:03 am stock sale / Emergency Fund question. May 28, 2008, 11:57 am muni bond fund vs. "core" bond funds March 26, 2007, 10:46 am Emergency Economic Stabilization Act of 2008 October 5, 2008, 12:32 am Comparing MA Muni Funds to Online Savings Accounts June 24, 2008, 3:13 pm Target Retirement Fund vs. existing LifeStrategy Growth Fund June 27, 2007, 5:05 am