Should I Get Rid of my Emergency Fund?

It’s wise for everyone to have an emergency fund of approx 3 months of typical life expenses. Since 2005, I’ve had $7,000 (now $8,200) sitting in a CD. While it wasn’t entirely liquid, I considered that my emergency fund. If I need it, I could take it out of the bank with a slight penalty and have it in a short amount of time. If I were desperate, my parents and/or boyfriend would be able to lend me a few hundred bucks to cover rent, food and gas until I had access to the money.

That made sense back when my account was yielding 4%, but now it’s making a paltry .35%. I’m so tempted to take that money out and put it in the stock market. Ok, so I’m getting addicted to investing — which could really bite me in the butt — I just realize that the only way I am going to be able to afford retirement is if I put as much much as possible into the market in my 20s and early 30s.

If I take the money out of the Emergency Fund, I’d put $2000 to maxing out my IRA for 2010, and then $3000 on AAPL, $1000 on VZ, $1000 on MCD, $500 on CVX, $500 on SBUX or something like that. AAPL is the riskiest play of all of those, but I believe AAPL stock will go up before it goes down, and it’s still a bargain given its growth prospects. The $2000 in the IRA would go straight into my high dividend ETFs (I use my IRA for dividend ETFs and gold/silver ETFs that would otherwise get charged at the collectible rate) and a REIT ETF which I don’t understand but supposedly it’s good to hold those in IRAs also.

Anyway — is it a terrible idea to get rid of my emergency fund? I have over $100k in stocks now, and many of them are in taxable, non-IRA accounts, which really are just as illiquid as the CD. They are much more risky, but $8,200 sitting in a .35% yield account for 18 months is not doing me any favors either.

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3 thoughts on “Should I Get Rid of my Emergency Fund?”

  1. My own opinion: Yes, it's a terrible idea to get rid of an emergency fund for ANY reason aside from an emergency. An emergency fund is not there to earn money – it should be liquid and available at a moment's notice.

    Our emergency fund is in a savings account earning 1.1% interest, the highest we could find for that liquidity. When I think of the few times I've needed to use my emergency fund, I'm really glad it's been completely accessible.

  2. I wouldn't get rid of your emergency fund, but I would see if you can cancel it before maturity and move it to an online savings account like Ally instead. If you put it in a 5 year CD, there's only a 60 day penalty on interest and you would be getting a much better rate.

    The whole point of an emergency fund is that it's there when things really get difficult financially.

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