HapiMoney

In our last post, we covered exactly how much cash you should keep on hand. 6 months worth of expenses plus any additional known large cash outlays should do just the trick. One thing that wasn’t mentioned is that this assumes that your income is greater than your expenses.  If you are unemployed, or are spending more than you make, step one is to hoard as much cash as possible and step two is to rectify the situation.

Now, for those of you who are not in dire straits, its time to talk interest rates.

As of right now, interest rates on checking accounts, money markets and other short term accounts are hovering right around 0%. This means you’d almost be better off with a cash stuffed mattress.  That also means we should keep a bare minimum in these types of accounts.  Personally,  I have a checking account through Bank of America earning zilch and a Schwab Account which sweeps my free cash into a money market earning 0.1%.  The only reason I have any cash at all in Bank of America is because they’ve got ATM’s all over where I can deposit checks.   Thus, the money market functions as my true checking account, and I have 2 months worth of expenses there.

The remainder of your cash should be in a high interest bearing savings account. Your money will be less liquid than a checking account, but it will be maximizing your return in respect to risk.  As of right now, Ally Bank, American Express and HSBC Direct offer 1.5%, 1.5%, and 1.35% respectively.  Personally, I’ve gone with American Express, but make sure to investigate current rates whenever you decide to invest.

To summarize: 1/3 of your cash in low interest checking, and 2/3 of your cash in high yield savings.

The next step after establishing your emergency cash fund is to figure out where to put the rest of your money (stocks, bonds, CD’s, etc). We’ll get into that next.