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Emergency fund parking options
- Thread starter vijay
- Start date
Since you are talking about emergency fund, its best to keep in savings account! Rather than anywhere else!
=> Savings account which pays high interest rate (you can consider AU/RBL here)
As per the book, two things should always be ensured!
1. It should be readily liquidable!
2. It should be having almost 0% risk!
20% - Savings Bank
30% - Fixed Deposit in a bank.
50% - Short Term Debt Fund
30% - Fixed Deposit in a bank.
50% - Short Term Debt Fund
SiddharthR
TF Ace
According to me, open a FD in bank with the term giving highest interest rates and break the FD incase of emergency. A penalty will be charged but still you will get better returns than Savings account & Liquid Funds.
Penalty:
HDFC: 1% less than interest rate at the period of breaking FD.
SBI : 0.5% less than interest rate at the period of breaking FD.(upto ₹5,00,000)
1% less than interest rate at the period of breaking FD.(above ₹5,00,000)
dipendrak1
TF Neo
Which bank should I consider parking my emergency fund up to 5 lakhs as saving balance.
raghumahajan
TF Premier
The penalty does not work like this.
Example: If you have done FD for one year in SBI @7%/annum interest, but you break the FD within 3 months. It will give you interest of 3 months plan i.e., ~4%/annum - 0.5%(penalty) = 3.5%/annum.
Saving bank account also gives 3.5%/annum interest. So FD makes no sense.
technoboy99
TF Buzz
I see that most people are recommending a mixture of Savings Bank Account(Banks may fall in a big financial emergency, so you might not be able to use your emergency fund!), Fixed deposits(have charges on early withdrawal) and short term debt fund (Debt is risky too, especially in times of financial instability, Ex. 2008 Subprime crisis).
My recommendation will be to buy Central Govt bonds and Sovereign Gold bonds either in 75:25 ratio either directly or through Gilt and Gold Mutual Funds. Even in times of extreme turbulence, govt of india will never default and you’d earn a bit more than FD interests in Central govt. bonds and withdrawal has almost no penalty(Gilt Mutual funds usually have no exit load 14 days after investing).
My recommendation will be to buy Central Govt bonds and Sovereign Gold bonds either in 75:25 ratio either directly or through Gilt and Gold Mutual Funds. Even in times of extreme turbulence, govt of india will never default and you’d earn a bit more than FD interests in Central govt. bonds and withdrawal has almost no penalty(Gilt Mutual funds usually have no exit load 14 days after investing).
its_karan
TF Ace
Addition: Interest rate prevailing at the time of booking the FD for 3 months and not the current 3 month rate will be the Rate you get.
That's why Banks give Historical rates on their websites.
m4b
TF Premier
Bhai naam mein emergency hai, I would keep an emergency fund in savings any day and I do as well for anytime liquidity. Emergency funds shouldn't be used for any investment purpose. That's my opinion.
HDFC, SBI, AXIS, ICICI ye sari badi banks ek din mein ni girrne wale.
Don't keep more than 5L in any bank account try to distribute across multiple banks.
HDFC, SBI, AXIS, ICICI ye sari badi banks ek din mein ni girrne wale.
Don't keep more than 5L in any bank account try to distribute across multiple banks.
its_karan
TF Ace
Yeah some times it touches 7% which is very safe bet considering 91d days time frame
suhasa010
TF Premier
But Sovereign Gold Bonds have 5-7 yr maturity!
Emergency funds should be liquid, not locked-in!
Cc_creditguy
TF Premier
Can you explain this ??
It's the interest for 91day t bill by government which is the safest for shorter period wrt interest
If u invest 10k the 9830 will be debited from broker acc and during maturity we will get as 10k. Interest Is paid upfront. If u have zerodha then u can check the tbill which is lowest wet price n buy it
Pradumya
TF Premier
Go for sweep account with any any bank for upto 4.5lac. each
The goal should not be to look at interest rates in case of emergency funds.
You can always increase your fund size to beat inflation.
The goal should be to park it such that you can access that in less than 24 hours.
Savings bank - best for emergency fund but risk is that you may spend the money elsewhere. Option to not activate the UPI or netbanking of this account. Just use ATM card and cheque book.
Regular FD - might not be accessible instantly in case of non working days. I won't say premature withdrawal penalties are any issue bcz you should not focus on interest rate.
Debt/Liquid funds - very illiquid as the withdrawal may take time and more time in case of non working days or long weekends.
Someone also said government bonds - just avoid that bcz all of them have lock-in periods and you don't know when emergency might come. Yes bonds can be sold in secondary market but no surity of buyer.
Best option - Sweep FD account - there is sweep in sweep out account that can be used for this purpose, mostly comes with no premature withdrawal penalties, but confirm this in writing from bank.
If this was helpful, mark it as solution
The goal should not be to look at interest rates in case of emergency funds.
You can always increase your fund size to beat inflation.
The goal should be to park it such that you can access that in less than 24 hours.
Savings bank - best for emergency fund but risk is that you may spend the money elsewhere. Option to not activate the UPI or netbanking of this account. Just use ATM card and cheque book.
Regular FD - might not be accessible instantly in case of non working days. I won't say premature withdrawal penalties are any issue bcz you should not focus on interest rate.
Debt/Liquid funds - very illiquid as the withdrawal may take time and more time in case of non working days or long weekends.
Someone also said government bonds - just avoid that bcz all of them have lock-in periods and you don't know when emergency might come. Yes bonds can be sold in secondary market but no surity of buyer.
Best option - Sweep FD account - there is sweep in sweep out account that can be used for this purpose, mostly comes with no premature withdrawal penalties, but confirm this in writing from bank.
If this was helpful, mark it as solution
